$48,870,000 UNIVERSITY OF ALASKA General Revenue Bonds, 2011 Series Q

Transcription

1 NEW ISSUE BOOK ENTRY ONLY October 5, 2011 RATINGS: Moody s Investors Service: Aa2 Standard & Poor s: AA- (See RATINGS herein) In the opinion of Bond Counsel, based on an analysis of existing statutes, regulations, rulings and judicial decisions, and assuming, among other things, compliance by the University with its covenants relating to certain requirements contained in the Internal Revenue Code of 1986, as amended (the Code ), interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes. Interest on the Bonds is not treated as a tax preference item for purpose of either the individual or corporate alternative minimum tax. Interest on the Bonds may be indirectly subject to corporate alternative minimum tax and certain other taxes imposed on certain corporation. See TAX MATTERS herein. Dated: As of Delivery Date $48,870,000 UNIVERSITY OF ALASKA General Revenue Bonds, 2011 Series Q Due: October 1, as shown below The University of Alaska General Revenue Bonds, 2011 Series Q Bonds (the Bonds ), initially will be issued as fully registered bonds under a book-entry system, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York, ( DTC ) the securities depository for the Bonds. (See BOOK-ENTRY SYSTEM herein.) Individual purchases of the Bonds will initially be made in full book-entry only form in the principal amounts of $5,000 or integral multiples thereof. The Bonds will bear interest payable on April 1, 2012 and semiannually thereafter on October 1 and April 1 of each year and are subject to redemption prior to maturity as described herein. The Bonds are revenue obligations of the University of Alaska (University) secured under a Trust Indenture dated as of June 1, 1992, between the University and The Bank of New York Mellon Trust Company, N.A., as successor trustee (the Trustee ), and a Fourteenth Supplemental Trust Indenture dated as of October 1, 2011 between the University and the Trustee. The Bonds are being issued to fund certain capital projects of the University. The Bonds, together with $90,230,000 principal amount of general revenue bonds outstanding as of October 2, 2011, and any additional parity bonds are equally and ratably secured under the Indenture by a pledge of revenues derived from certain fees, charges and rentals received by the University and the moneys and securities held under the Indenture, including the Reserve Fund. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS OR OTHER LIABILITY OF THE STATE OF ALASKA OR ANY POLITICAL SUBDIVISION THEREOF, EXCEPT THE UNIVERSITY, AND THE BONDS DO NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OF ALASKA TO LEVY ANY FORM OF TAXATION OR MAKE ANY APPROPRIATION FOR THE PAYMENT OF THE BONDS. THE UNIVERSITY HAS NO TAXING POWER. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF ALASKA OR ANY POLTICAL SUBDIVISION THEREOF IS PLEDGED FOR THE PAYMENT OF THE BONDS. MATURITY SCHEDULE Due October 1 Principal Amount Interest Rate Yield Price CUSIP * Due October 1 Principal Amount Interest Rate Yield Price CUSIP * 2012 $ 1,565, % 0.55% % VV $ 2,935, % 2.87% % WE ,290, VW ,905, WF ,350, VX ,060, WG ,425, VY ,215, WH ,495, VZ ,380, WJ ,510, WA ,530, WK ,605, WB ,210, WL ,705, WC ,265, WM ,820, WD ,320, WN3 $4,285, % Term Bond due October 1, 2032, Yield, 4.144%, Price %, CUSIP WP8 The Bonds were purchased at a public sale on October 5, 2011 by Wells Fargo Bank, National Association. The Bonds are offered when, as and if issued subject to the approving legal opinion of Wohlforth, Brecht, Cartledge & Brooking, Anchorage, Alaska, Bond Counsel. It is expected that the Bonds, in book-entry form will be issued and available by Fast Automated Securities Transfer for delivery through the facilities of DTC in New York, New York on or about October 25, * CUSIP numbers have been assigned to the Bonds by Standard & Poor s CUSIP Service Bureau, a division of the McGraw Hill Companies, Inc., and are included solely for the convenience of the owners of the Bonds. The University is not responsible for the selection or the correctness for the CUSIP numbers set forth above. Price and yield to the first optional call date of October 1, 2021.

2 This Official Statement is furnished by the University to provide information regarding the sale of the Bonds referred to herein and may not be reproduced or be used, in whole or in part, for any other purpose. The delivery of this Official Statement does not imply that information herein is correct as of any time subsequent to the date hereof. No dealer, broker, salesman or other person has been authorized by the University to give any information or to make any representations, other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the University. This Official Statement does not constitute an offer to sell or solicitation of an offer to buy, nor is there authorized to be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. This Official Statement is not to be construed as a contract with purchasers or owners of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as matters of fact. UPON ISSUANCE, THE BONDS WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND WILL NOT BE LISTED ON ANY STOCK OR OTHER SECURITIES EXCHANGE. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL, STATE, OR OTHER GOVERNMENTAL ENTITY OR AGENCY WILL HAVE PASSED ON THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFICIAL STATEMENT OR APPROVED THE BONDS FOR SALE. THE INDENTURE WILL NOT BE QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED. This Official Statement is submitted by the University in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The Official Statement is in a form deemed final by the University pursuant to Rule 15c2-12 of the Securities and Exchange Commission.

3 UNIVERSITY OF ALASKA Statewide Finance Office 209D Butrovich Building P.O. Box Fairbanks, Alaska (907) Board of Regents Fuller Cowell, Chair Bob Martin, Secretary Mari Freitag, Student Regent Kenneth J. Fisher Mary K. Hughes Michael Powers Patricia Jacobson, Vice Chair Kirk Wickersham, Treasurer Timothy C. Brady Jyotsna Heckman Carl Marrs Administration Patrick K. Gamble, President Joseph Trubacz, Vice President for Finance and Administration and Chief Financial Officer Roger Brunner, General Counsel Myron J. Dosch, Controller Wei Guo, Senior Accountant Carol L. Griffin, Vice Chancellor for Administrative Services, University of Alaska Southeast Pat Pitney, Vice Chancellor for Administrative Services, University of Alaska Fairbanks William H. Spindle, Vice Chancellor for Administrative Services, University of Alaska Anchorage Bond Counsel Wohlforth, Brecht, Cartledge & Brooking Anchorage, Alaska Trustee The Bank of New York Mellon Trust Company, N.A. Seattle, Washington Financial Advisor Kaplan Financial Consulting, Inc. Wilmette, Illinois

4 THIS PAGE INTENTIONALLY LEFT BLANK

5 $48,870,000 UNIVERSITY OF ALASKA General Revenue Bonds, 2011 Series Q TABLE OF CONTENTS INTRODUCTION... 1 DESCRIPTION OF THE BONDS... 1 General... 1 Optional Redemption... 2 Mandatory Redemption... 2 Purchase of 2011 Bonds... 2 Book-Entry System... 2 Notice of Redemption... 4 Transfer of Securities... 5 THE USE OF BOND PROCEEDS... 6 General... 6 The Projects... 6 Future Financings... 7 Table 1: Sources and Uses of Funds... 7 SECURITY FOR THE BONDS... 7 Authorization... 7 Pledged Revenues... 8 Table 2: Revenues Pledged to General Revenue Bonds... 9 Reserve Fund... 9 Rate Covenant... 9 Additional Bonds...10 Debt Service Coverage...10 Table 3: Combined Debt Service on General Revenue Bonds and Other Indebtedness Table 4: Schedule of Long-Term Debt GENERAL INFORMATION CONCERNING THE UNIVERSITY OF ALASKA General Description of the Programs Accreditations Administration of the University Board of Regents Business and Finance Officers Faculty and Employees The Student Body Student Enrollment Table 5: On Campus Fall Enrollment Table 6: Student Applications and Enrollment Tuition and Fees Table 7: Student Tuition per Credit Hour Table 8: Average Annual Full-Time Student Tuition and Fees Total Costs Undergraduate Residents...20 Table 9: Annual Student Room and Board and Total Undergraduate Educational Costs...20 College Savings Plan Scholars Programs...21 Facilities and Capital Program Libraries and Museum Residential and Other Physical Plant Capital Program Retirement Plans State Appropriations to the University Table 11: Summary of State Appropriations.. 25 Investments and Liquidity Gifts, Endowments and Fund Raising The University of Alaska Foundation Table 12: Summary Financial Information.. 27 Endowments Funds Table 13: Summary Financial Information.. 29 Grants and Contracts Table 14: Expenditures of Federal Grants and Contracts By Agency Table 15: Summary of Revenues, Expenses and Changes in Net Assets Table 16: Statement of Net Assets CERTAIN LEGAL MATTERS TAX MATTERS ABSENCE OF LITIGATION FINANCIAL ADVISOR RATINGS FINANCIAL STATEMENTS UNDERWRITING CONTINUING DISCLOSURE MISCELLANEOUS EXECUTION OF OFFICIAL STATEMENT APPENDIX A -- University of Alaska Audited Financial Statements Fiscal Year Ended June 30, 2010 APPENDIX B -- Trust Indenture APPENDIX C -- Form of Opinion of Bond Counsel APPENDIX D -- Form of Continuing Disclosure Financial Aid Statistics, College Savings Plan and Scholars Program...20 Table 10: Summary of Financial Aid...20

6 THIS PAGE INTENTIONALLY LEFT BLANK

7 OFFICIAL STATEMENT $48,870,000 UNIVERSITY OF ALASKA General Revenue Bonds, 2011 Series Q INTRODUCTION The purpose of this Official Statement, including the cover page and the Appendices hereto, is to furnish information regarding the issuance of the University of Alaska General Revenue Bonds, 2011 Series Q in the principal amount of $48,870,000 (the "Bonds"), the University of Alaska (the "University"), the Board of Regents of the University of Alaska (the "Board" or "Board of Regents"), and certain matters relating to the University's finances, enrollment and administration. The Bonds will be issued pursuant to a resolution adopted by and actions authorized by the Board of Regents and in accordance with the provisions of a Trust Indenture, as amended (the Trust Indenture ) dated as of June 1, 1992 between the University and The Bank of New York Mellon Trust Company, N.A., as successor trustee, (the "Trustee") and as supplemented by the Fourteenth Supplemental Trust Indenture (the Fourteenth Supplemental Trust Indenture ) dated as of October 1, 2011 between the University and the Trustee. The Trust Indenture and the Fourteenth Supplemental Trust Indenture are together referred to herein as the "Indenture." The University is the only public institution of higher learning in the State of Alaska (the State ). It is a Statewide system that consists of three multi-mission universities located in Anchorage, Fairbanks, and Juneau with extended satellite colleges and sites throughout the State, including over 100 extension and research sites. This Official Statement contains information on the terms of the Bonds, descriptions of the University, and certain fiscal matters of the University. The descriptions included in this Official Statement do not purport to be comprehensive or definitive, and such summaries and descriptions are qualified in their entirety by reference to such laws, and the definitive forms of documents, exhibits or appendices where applicable. Any statements, herein involving estimates, projections or forecasts are to be construed as such rather than as statements of facts or representations that such estimates, projections or forecasts will be realized. Summaries of or references to, provisions of the Internal Revenue Code of 1986, as amended (the Code ), contained herein are made subject to the complete provisions thereof and do not purport to be complete statements thereof. GENERAL DESCRIPTION OF THE BONDS The aggregate principal amount of the Bonds to be issued is $48,870,000. The Bonds will be dated as of their date of issuance and will bear interest from the dated date of the Bonds payable on April 1, 2012, and semiannually thereafter on October 1 and April 1 of each year. The Bonds will mature on October 1 of each year and in the principal amounts, and will bear interest at the rates, as set forth on the cover of the Official Statement. 1

8 The Bonds will initially be issued in book-entry only form in denominations of $5,000 or any integral multiple thereof. The Bonds, when executed and delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), which will act as depository for the Bonds. Purchasers of beneficial interests in the Bonds will not receive physical delivery of certificates representing their interests in the Bonds. So long as DTC, or its nominee, Cede & Co. is the registered owner of all the Bonds, all payments on the Bonds will be made directly to DTC, and disbursements of such payments to the hereafter described Beneficial Owners of the Bonds will be the responsibility of the DTC Participants as more fully described hereafter. OPTIONAL REDEMPTION The Bonds maturing on or after October 1, 2022 are subject to redemption at the option of the University, either as a whole or in part, in any order of maturity, on any date which shall be selected by the University, subject to the provisions of, and in accordance with the Indenture, on or after October 1, 2021, at a redemption price equal to 100% of the principal amount of the Bonds being redeemed, plus accrued interest, if any, to the redemption date. MANDATORY REDEMPTION Unless previously redeemed pursuant to the foregoing optional redemption provisions, the Bonds maturing on October 1, 2032 (the Term Bonds ) are subject to redemption on October 1 of the following years and in the following principal amounts at 100% of the principal amount of the Bonds to be redeemed plus accrued interest, if any, to the redemption date. Term Bonds Due October 1, 2032 Year Sinking Fund Requirement 2030 $ 1,370, ,430, (maturity) 1,485,000 The Bonds owned by or for the account of the University will not be considered outstanding for purposes of either an optional or mandatory redemption of such 2011 Bonds. PURCHASE OF 2011 BONDS The Trustee shall purchase 2011 Bonds at such times, for such prices, and in such amounts as the University shall from time to time direct in writing. Provided, however, no purchase of 2011 Bonds shall be made by the Trustee within the period of forty-five days next preceding any date on which such 2011 Bonds are subject to redemption. And, if the 2011 Bond to be purchased is a term bond, and less than all of the principal amount of such term bond is being purchased, the Trustee shall credit such purchase, on a pro rata basis, to each outstanding sinking fund installment due under such term bond. BOOK-ENTRY SYSTEM The following information has been provided by The Depository Trust Company, New York, New York ("DTC"). The University makes no representation regarding the accuracy or completeness thereof. Each actual purchaser of a Bond (a "Beneficial Owner") should therefore confirm the following with DTC or the Participants (as hereinafter defined). DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate will be issued in the aggregate principal amount of such issue, and will be deposited with DTC. 2

9 DTC the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bonds ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 3

10 Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC s receipt of funds and corresponding detail information from the University or the Trustee on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee, or the University, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the University or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the University or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The University may decide to discontinue use of the system of book-entry transfers through DTC (or a successor depository). In that event, Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the University believes to be reliable, but the University takes no responsibility for the accuracy thereof. NOTICE OF REDEMPTION At least 30 days, but not more than 60 days, prior to the date upon which any Bonds are to be redeemed, the Trustee will deliver by first class mail a notice of redemption to the registered owner of any Bond identifying all or a portion of the Bonds which are to be redeemed, at the owner's last address appearing on the registration books of the University kept by the Trustee. On the date on which the redemption notice is mailed to the registered owners pursuant to the preceding paragraph, the Trustee shall give notice of redemption identifying the Bonds or portions thereof to be redeemed to Standard & Poor s Ratings Services, a Division of The McGraw-Hill Companies. So long as a book-entry system is used for determining beneficial ownership of the Bonds, notice of redemption will be sent to DTC, and any notice to the beneficial owners of the Bonds will be the responsibility of DTC. The University will not provide redemption notices to the beneficial owners. Neither failure to receive any redemption notice nor any defect in such redemption notice so given will affect the sufficiency of the proceedings for the redemption of the Bonds. Failure by the Trustee to deliver notice of redemption of the Bonds at times required shall not impair the ability of the Trustee and the University to affect such redemption. The University can make no assurances that the Trustee, DTC, DTC Participants or other nominees of the bondholders will distribute such redemption notices to the bondholders, or that they will do so on a timely basis, or that DTC will act as described in this Official Statement. 4

11 TRANSFER OF SECURITIES The Bonds shall only be transferable upon the books of the University, which shall be kept for such purposes at the principal office of the Trustee, by the registered Owner in person or by a duly authorized attorney, upon surrender thereof with a written instrument of transfer satisfactory to the Trustee. Upon transfer of any such Bond, the Trustee shall authenticate and deliver in the name of the transferee a new fully registered Bond or Bonds of the same aggregate principal amount and maturity as the surrendered Bond. 5

12 THE USE OF BOND PROCEEDS GENERAL The Bonds will be issued for purposes of (i) paying a portion of the costs of acquisition, construction, refurbishment and improvement of the projects described below for University purposes, (ii) making a deposit into the Reserve Fund, and (iii) paying the cost of issuing Bonds. THE PROJECTS Proceeds of the Bonds will be used by the University to finance certain capital projects which include the following: University of Alaska Fairbanks Life Sciences Project The project includes approximately 100,000 square feet of new classrooms and laboratories, expansion of the University s utility plant to provide service to the new facility and relocation of a greenhouse facility that is currently on site. The Life Sciences Facility will integrate teaching and research in biological, wildlife and biomedical sciences and provide undergraduate and graduate training necessary for careers in the biological sciences and will provide modern academic space for more than 600 biology and wildlife degree students and more than 1,200 students who take biology courses each year. Research space will feature a series of labs for as many as twelve lead researchers who will also employ seven to ten scientists each. The total project cost is estimated at $108.6 million, of which $20.6 million will be funded with proceeds of the Bonds. The balance is expected to be paid from proceeds of State of Alaska general obligation bonds that were authorized by Alaska voters in November 2010 and that included $207 million for University projects, including $88 million for the Life Sciences Project. The State of Alaska issued $200 million of general obligation bonds against this authorization in December 2010, the proceeds of which are, in part, being used to finance other University projects. The University has awarded three construction contracts totaling of $82.7 million for the project. (Other costs in the $108.6 million include design, management, equipment and contingencies of $25.9 million.) Construction began in April 2011 and as of August 15, 2011 the project is approximately 15% complete. The facility is projected to be complete by May University of Alaska Facility and Infrastructure Renewal and Deferred Maintenance The State of Alaska s fiscal 2012 capital budget authorizes $87.5 million of spending for deferred maintenance projects at the University, with $37.5 million coming from the State s general fund and the balance from the University. Approximately $27.36 million of the Bonds will be invested in numerous facilities throughout the State to address critical deferred maintenance needs. The projects consist primarily of roof replacements, co-generation power plant system replacements, electrical system upgrades, heating and ventilation system replacements and classroom renovations. University of Alaska Southeast Food Service Facilities Approximately $2.0 million of the Bonds will be used to make alterations to existing facilities to provide food service capacity as part of student housing at the Juneau campus. The total project cost is approximately $4.0 million, of which the State of Alaska provided a $2.0 million capital appropriation in the fiscal year 2012 capital budget. Upon completion of the projects mentioned above, and subject to the terms of the Indenture and authorization by the Board of Regents, remaining Bond proceeds, if any, may be used to finance other qualified capital projects. 6

13 FUTURE FINANCINGS The University has received authority from the State of Alaska to issue $50 million of general revenue bonds for deferred maintenance projects. The University expects to use approximately $27 million of this authorization with the issuance of the Bonds. The remaining $23 million authorization is planned for use with future parity revenue bonds in about twelve to eighteen months. Table 1 UNIVERSITY OF ALASKA Sources and Uses of Funds Sources: Bond Principal $48,870, Net Original Issue Premium 4,074, Total Sources $52,944, Uses: Deposit to Construction Account $49,960, Deposit to Reserve Account 1,843, Costs of Issuance, including underwriting discount 1,139, Total Uses $52,944, SECURITY FOR THE BONDS AUTHORIZATION The Bonds are being issued pursuant to Chapter 40 of Title 14 of the Alaska Statutes, as amended (the "Act") which authorizes the University to issue revenue bonds (including refunding bonds) to pay the cost of acquiring, constructing or equipping facilities that the Board of Regents determines necessary. Provisions enacted into law during the 1991 legislative session authorized the University to issue revenue bonds with the approval of the Board of Regents. The State Legislature must approve, by law, a project (other than a refunding obligation) financed by obligations with annual debt service payments anticipated to exceed $2.5 million dollars. The Bonds are issued by virtue of a Bond Resolution adopted by the Board of Regents of the University on September 22, 2011 and a Fourteenth Supplemental Indenture dated October 1, 2011 by and between the University and the Trustee. Since 1992, the University has issued fifteen series of general revenue bonds totaling $ million of which $90.23 million was outstanding as of October 2, Upon issuance of the Bonds, $ million will be outstanding. 7

14 PLEDGED REVENUES The Bonds constitute revenue obligations of the University. The Bonds do not constitute an indebtedness or liability of the State, and the Bonds do not directly, indirectly or contingently obligate the State or any political subdivision thereof to apply moneys from or levy or pledge any form of taxation whatever for the payment of the Bonds. The University has no taxing power. The State is not obligated, morally or legally, to appropriate monies to pay debt service on the Bonds. Pursuant to the Indenture, the Revenues, and all of the moneys, securities and funds held and set aside under the Indenture are pledged and assigned, equally and ratably, to secure the payment of the principal and redemption price of, and interest on all Bonds and parity bonds outstanding under the Indenture, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions specified in the Indenture. "Revenues" consist of all student fees, charges and rentals, including receipts from sales of goods and services, facilities and administrative cost recovery, income of auxiliary enterprises, miscellaneous fees and fines and similar items which are unrestricted but not including: (1) governmental appropriations, other than for the items specified above; (2) gifts, donations and endowment earnings; (3) investment earnings, other than earnings on funds held under the Indenture, and (4) revenues from trust land required to be deposited in the Land Grant Endowment Trust Fund pursuant to Alaska Statute The Act provides that any pledge under the Indenture of the Revenues received by the University is considered a perfected security interest and is valid and binding from the time when the pledge is made, and that the property so pledged is immediately subject to the lien of such pledge without any physical delivery or other act. The State has pledged not to limit or alter rights vested in the University to fulfill the terms of a contract with revenue bond owners. All Revenues are deposited upon receipt in the Revenue Fund held by the University. Amounts may be paid out of the Revenue Fund without restriction for operating costs of the University. The University covenants to pay its general expenses from legislative appropriations made from the State's general fund before paying operating expenses from the Revenue Fund. Amounts will be paid out of the Revenue Fund into the Debt Service Fund to the extent necessary for the payment of debt service on the Bonds and all parity bonds and will be paid out of the Revenue Fund and into the Reserve Fund to the extent necessary so that the amount therein equals the Reserve Requirement. 8

15 Table 2 UNIVERSITY OF ALASKA Revenues Pledged to General Revenue Bonds (1) For Fiscal Years Ending June 30 ($'s in 000's) Estimated Unaudited Student Tuition and Fees, net $ 84,469 $ 92,083 $ 98,211 $ 106,340 $ 116,104 Facilities and Administrative Cost Recovery 30,937 30,731 30,086 33,087 33,737 Sales and Services of Educational Depts. 3,688 3,345 3,850 4,073 4,029 Other Sources, Net of Gifts (2) 14,837 14,457 15,687 14,457 17,083 Auxiliary Enterprises, net 38,849 39,192 39,990 39,225 41,066 Total Pledged Revenue $ 172,780 $ 179,808 $ 187,824 $ 197,182 $ 212,019 Fiscal year debt service $ 7,899 $ 8,057 $ 9,036 $ 9,132 $ 9,192 Coverage 21.9X 22.3X 20.8X 21.6X 23.1X (1) (2) Consistent with the terms of the Trust Indenture, all revenues generated from the sources identified in the table are Revenues that secure the University's General Revenue Bonds, including the Bonds. Gifts are excluded as Revenues pledged for payment of General Revenue Bonds. Source: University of Alaska Fund Accounting. RESERVE FUND The Indenture establishes the Reserve Fund to be held by the Trustee and provides for a Reserve Requirement equal to (i) one-half of Maximum Aggregate Debt Service in any Bond Year on all outstanding Bonds and Additional Bonds, or (ii) such lesser amount as is required in order to maintain the tax-exempt status of the Bonds. The Indenture provides that if five Business Days prior to any principal or interest payment date for the Bonds the amount in the Debt Service Fund is less than the amount required to pay such principal or interest, the Trustee will apply amounts from the Reserve Fund to the extent necessary to make good the deficiency. Under certain conditions, the Indenture permits Reserve Equivalents to be used to satisfy the Reserve Requirement. As of October 5, 2011, the Reserve Fund held Investment Securities with a market value of $4.65 million which comprised of $4.22 million in money market investment and $0.43 million in Federal Agency bonds. RATE COVENANT The Indenture establishes that the University will fix, maintain and collect fees, charges and rentals, and the University will adjust such fees, charges and rentals such that Revenues of the University will be at least equal in each Fiscal Year to the greater of (a) the sum of (i) an amount equal to Aggregate Debt Service for such Fiscal Year; (ii) the amount, if any, to be paid during such Fiscal Year into the Reserve Fund; (iii); the amount of draws, interest and expenses then due and owing on any Reserve Equivalent and (iv) all other amounts which the University may now, or hereafter, become obligated to pay, by law or contract, from Revenues during such Fiscal Year; or, (b) an amount equal to at least two times the Aggregate Debt Service for such Fiscal Year. 9

16 ADDITIONAL BONDS The University may issue one or more series of Additional Bonds on a parity with the Bonds and secured by an equal lien on the Revenues for the following purposes: (a) Additional Bonds may be issued to provide funds to pay for the cost of Acquisition or Construction of a project for the University, upon delivery to the Trustee of a certificate from an Authorized Officer of the University that the amount of Revenues received by the University during the last Fiscal Year prior to the issuance of the Additional Bonds was at least equal to two times Maximum Aggregate Debt Service with respect to all Bonds and Additional Bonds to be outstanding after the issuance of such Additional Bonds and 1.0 times any amount of the draws, interest and expenses then due and owing under any Reserve Equivalent. (b) Additional Bonds may be issued to refund any outstanding obligations of the University including the Bonds. The University must certify either (i) that Aggregate Debt Service in any Fiscal Year will not be increased as a result of such refunding, or (ii) that the amount of Revenues received by the University during the last Fiscal Year prior to the issuance of the Additional Bonds was at least equal to two times Maximum Aggregate Debt Service with respect to all Bonds and Additional Bonds to be outstanding after the issuance of such Additional Bonds. Subordinated indebtedness secured by a lien on the Revenues may be issued provided that such lien is junior and inferior to the lien of the Bonds on the Revenues. There is no subordinated indebtedness secured by a lien on the Revenues as of the date of this Official Statement. DEBT SERVICE COVERAGE The following debt service coverage is based on pledged Revenues for the fiscal years as indicated (see Table 2, Revenues Pledged to General Revenue Bonds ), and the annual debt service requirements on all General Revenue Bonds, including the Bonds. See Table 3, Combined Debt Service on General Revenue Bonds and Other Indebtedness. Estimated Unaudited 2011 Pledged Revenues $212,019,000 Maximum Aggregate General Revenue Bond Debt Service including the Bonds (Fiscal Year 2014) $12,984,474 Estimated Coverage 16.3X 10

17 Table 3 UNIVERSITY OF ALASKA Combined Debt Service on General Revenue Bonds and Other Indebtedness Debt Service Outstanding 2011 Series Q Total General Fiscal Revenue Revenue Bond Other Year Bonds Principal Interest Total Debt Service Indebtedness (2) Total 2012 (1) $ 1,945,231 $ - $ 836,398 $ 836,398 $ 2,781,629 $ 1,215,713 $ 3,997, ,193,944 1,565,000 1,914,500 3,479,500 12,673,444 2,114,767 14,788, ,818,524 2,290,000 1,875,950 4,165,950 12,984,474 1,905,134 14,889, ,679,094 2,350,000 1,817,800 4,167,800 12,846,894 1,680,169 14,527, ,789,523 2,425,000 1,746,175 4,171,175 12,960,698 1,619,624 14,580, ,737,096 2,495,000 1,672,375 4,167,375 12,904,471 1,539,594 14,444, ,738,623 2,510,000 1,591,025 4,101,025 12,839,648 1,500,000 14,339, ,449,731 2,605,000 1,495,000 4,100,000 11,549,731 1,500,000 13,049, ,444,974 2,705,000 1,388,800 4,093,800 11,538,774 1,500,000 13,038, ,460,553 2,820,000 1,278,300 4,098,300 11,558,853 1,500,000 13,058, ,286,177 2,935,000 1,163,200 4,098,200 11,384,377 1,500,000 12,884, ,079,010 2,905,000 1,031,875 3,936,875 11,015,885 1,500,000 12,515, ,921,046 3,060, ,750 3,942,750 9,863,796 1,501,354 11,365, ,029,054 3,215, ,875 3,940,875 8,969,929 8,969, ,788,279 3,380, ,000 3,941,000 8,729,279 8,729, ,787,971 3,530, ,900 3,935,900 8,723,871 8,723, ,788,620 1,210, ,050 1,515,050 6,303,670 6,303, ,989,129 1,265, ,500 1,514,500 4,503,629 4,503, ,780,474 1,320, ,800 1,517,800 3,298,274 3,298, ,781,450 1,370, ,000 1,514,000 3,295,450 3,295, ,139,633 1,430,000 88,000 1,518,000 2,657,633 2,657, ,140,613 1,485,000 29,700 1,514,700 2,655,313 2,655, ,144,481 1,144,481 1,144, , , , , , ,638 $ 127,514,443 $ 48,870,000 $ 21,400,973 $ 70,270,973 $ 197,785,416 $ 20,576,355 $ 218,361,771 Source: University of Alaska Fund Accounting. (1) 2012 Total Debt Service reflects remaining balance after October 1, 2011 principal and interest payment. (2) Other indebtedness consists primarily of $16.7 million outstanding, as of October 2, 2011, note payable to the Alaska Housing Finance Corporation (AHFC). The remaining amount is debt service on $1.7 million of outstanding installment contracts, due annually through Fiscal Year See Table 4, Schedule of Long- Term Debt for a description of the security provisions of the AHFC obligation. 11

18 Table 4 UNIVERSITY OF ALASKA Schedule of Long-Term Debt October 2, 2011 Interest Rates Interest Payment Dates Issue Date Final Maturity Date Amount Issued Outstanding October 2, 2011 (2) Installment Contracts Outstanding % Quarterly Various $ 3,539,844 $ 1,664,061 Notes Payable Alaska Housing Finance Corp. (AHFC) (1) 1.826% 8-1/ $ 33,000,000 $ 16,697,395 Revenue Bonds General Revenue Bonds, 2002 Series K General Revenue Bonds, 2003 Series L General Revenue Bonds, 2004 Series M General Revenue Bonds, 2005 Series N General Revenue Bonds, 2008 Series O General Revenue Bonds, 2009 Series P % % % % % % 10-1/ / / / / / ,515,000 23,665,000 9,970,000 6,355,000 11,070,000 8,630,000 24,355,000 19,725,000 23,795,000 20,075,000 14,045,000 11,780,000 $ 116,750,000 $ 90,230,000 Total Long-Term Debt $ 153,289,844 $ 108,591,456 Source: University of Alaska Fund Accounting. (1) Under the loan agreement under which the note to AHFC was issued, the obligation to repay the loan is an absolute, unconditional and unlimited general obligation of the University. The University has not pledged its Revenues, as defined in the Indenture, to make any of the payments required under the loan agreement with the AHFC. The University used these funds to construct a 558-bed suite-style housing and food service addition in Anchorage that opened in August (2) General Revenue Bonds reflect outstanding balance after principal payments made on October 1,

19 GENERAL INFORMATION CONCERNING THE UNIVERSITY OF ALASKA GENERAL The University of Alaska is the only public institution of higher learning in the State. It is a Statewide system that consists of three multi-mission universities located in Anchorage, Fairbanks, and Juneau with extended satellite colleges and sites throughout the State, including over 100 extension and research sites. The University was established at Fairbanks, Alaska, by Congress in 1915 as the Alaska Agricultural College and School of Mines; in 1935 it was renamed the University of Alaska; and in 1959 was established as the State university in the Alaska State Constitution. The University has expanded to include full-service universities in Fairbanks, Anchorage, and Juneau; lower division college centers in Bethel, Dillingham, Ketchikan, Kodiak, Kotzebue, Nome, Palmer, Sitka, and Soldotna; a community college at Valdez; and vocational, rural education, and extension sites throughout the State. The University is governed by an eleven-member Board of Regents, which is appointed by the governor. In June 2010, the Board of Regents appointed the then President of Alaska Railroad Corporation Patrick K. Gamble as the 13th president of the University of Alaska. Chancellors head the major regional instructional units: the University of Alaska Fairbanks, the University of Alaska Anchorage and the University of Alaska Southeast. The system's administrative offices are located on the Fairbanks campus. DESCRIPTION OF THE PROGRAMS The University of Alaska Anchorage offers baccalaureate and associate degrees, as well as certificate programs, through its colleges of arts and sciences, business and public policy, education and health and social welfare, as well as the schools of engineering, nursing and social work. In addition, master's degrees are offered in more than twenty-six programs along with a number of graduate certificate programs. It also provides adult and continuing education programs. Research programs are emphasized, primarily in biological and health sciences, public policy, and social and economic studies. The Community and Technical College provides both credit and non-credit instruction to the greater Anchorage area and the two military bases in the Anchorage area. The University of Alaska Fairbanks is a comprehensive, four year, doctoral degree-granting institution with four colleges and four professional schools that offer bachelor's degrees in more than sixty-five major areas and recognized master's degrees in professional disciplines and doctorates in the sciences and mathematics. The four colleges are the College of Liberal Arts, the College of Engineering and Mines, the College of Natural Science and Mathematics, and the College of Rural and Community Development, with the latter having branch campuses and extended sites throughout the State. The four professional schools consist of the School of Natural Resources and Agricultural Sciences, the School of Management, the School of Fisheries and Ocean Sciences and the School of Education. These colleges and schools offer certificates, associate and baccalaureate degrees as well as a wide range of technical/vocational programs. Master's degrees are offered in over fifty fields and doctoral programs are offered in the areas of anthropology, atmospheric sciences, biology, engineering, geology, geophysics, mathematics, oceanography, physics, space physics, and wildlife management. The Community and Technical College, one of the College of Rural and Community Development branch campuses, which is located in Fairbanks, focuses on the two-year educational mission and also offers courses at four military bases in the Fairbanks area. The University of Alaska Fairbanks is the University system s organized research hub. The wide range of science conducted is supported by a number of research centers and institutes. 13

20 The multi-mission university located in Juneau is referred to herein as the University of Alaska Southeast and is a comprehensive regional university with the primary purpose of providing postsecondary education in Southeast Alaska. The University of Alaska Southeast has campuses in Juneau, Ketchikan, and Sitka, and outreach locations throughout its region. It offers certificate programs and associate of applied science degrees in vocational-technical and business-related areas; associate of arts degrees and baccalaureate degrees in the liberal arts, sciences, education, business, and social sciences; and master's degrees in selected professional fields. In the Statewide system, this institution shares responsibility for programs in public administration, early childhood education and educational technology and has responsibility for statewide distance delivery of degrees in liberal arts and business and the master s degree in public administration. ACCREDITATIONS The four accredited institutions of the University, University of Alaska Anchorage, University of Alaska Fairbanks, University of Alaska Southeast, and Prince William Sound Community College, are accredited by the Northwest Commission on Colleges and Universities. Various schools and colleges at each institution are also accredited by their appropriate accrediting bodies. ADMINISTRATION OF THE UNIVERSITY BOARD OF REGENTS Established in 1917 as the Board of Trustees and made the Board of Regents by an act of the Territorial Legislature on July 1, 1935, the Board of Regents is an autonomous organization and the highest authority in the administration of the University. The eleven member Board of Regents is governed by Title 14, Chapter of the Alaska Statutes, which provides for the appointment of the Regents by the Governor of the State for overlapping terms of eight years, subject to confirmation by the State Legislature. Provision for a student representative to the Board of Regents, with a term of two years, was made in Members of the Board of Regents are as follows: Fuller Cowell, Chair Patricia Jacobson, Vice Chair Bob Martin, Secretary Kirk Wickersham, Treasurer Mari Freitag, Student Regent Timothy C. Brady Kenneth J. Fisher Jyotsna Heckman Mary K. Hughes Carl Marrs Michael Powers Board of Regents members receive no compensation for their services, but are reimbursed for expenses incurred in performing their duties. BUSINESS AND FINANCE OFFICERS The University s present business and financial officers are listed below, with biographical sketches following. Patrick K. Gamble, President, UA Joseph Trubacz, Vice President for Finance and Administration and Chief Financial Officer, UA Roger Brunner, General Counsel, UA Myron J. Dosch, Controller, UA Wei Guo, Senior Accountant, UA Carol L. Griffin, Vice Chancellor for Administrative Services, UAS Pat Pitney, Vice Chancellor for Administrative Services, UAF William H. Spindle, Vice Chancellor for Administrative Services, UAA 14

21 Patrick K. Gamble, became the 13th president of the University of Alaska on June 1, Prior to joining the university, he served Alaska for over nine years as president and chief executive officer of the Alaska Railroad Corporation. Before leading the railroad, Mr. Gamble served as a fighter pilot in the U.S. Air Force, retiring as a four-star general and as commander of U.S. air forces in the Pacific Region. Prior to that assignment, Mr. Gamble was director of Air Force Air and Space Operations in the Pentagon. From 1996 to 1998, he served as commander of Alaskan Command. Previous military assignments included director of NATO operations and logistics during Bosnia operations. He also served as Commandant of the U.S. Air Force Academy and commanded two fighter wings. Mr. Gamble earned a Bachelor of Arts degree in mathematics from Texas A & M University and a Master of Business Administration from Auburn University, Alabama. Joseph Trubacz was appointed Vice President for Finance and Administration and Chief Financial Officer in September Prior to that appointment, he served as Associate Vice President for Finance and Chief Financial Officer, a position he had been appointed to in December Prior to those appointments he served as the Interim Vice Chancellor of Administrative Services at the University of Alaska Fairbanks (UAF) for the period October 2005 through August 2006, and had directed the fiscal operations at UAF since 2001, first as director of financial services and then as associate vice chancellor of finance and business operations. Mr. Trubacz started with the University system in 1990, and his experience includes fiscal and administrative management of the Institute of Northern Engineering/Arctic Region Supercomputing Center and oversight of the Planning, Analysis and Institutional Research department at UAF. Mr. Trubacz earned a B.B.A. from the University of New Hampshire in 1981 and an M.B.A. in accounting from the Southern New Hampshire University in Mr. Trubacz has accepted a vice president position at a university in Colorado. His last day with the University will be October 21, Roger Brunner was appointed General Counsel in March Prior to his appointment he worked in general practice specializing in contract law and real estate. He was admitted to the Alaska Bar Association in Mr. Brunner has been admitted to the U.S. District Court for the District of Alaska, the Ninth Circuit Court of Appeals and the United States Supreme Court. Mr. Brunner holds a B.S. from Michigan State University and a J.D. from the University of Notre Dame. Mr. Brunner plans to retire in October His replacement will be Michael Hostina, who is currently an Associate General Counsel of the University. Myron J. Dosch, CPA, was appointed Controller for the University Statewide System in March Prior to that appointment, he served as Assistant Controller, Finance for one year with primary responsibility for debt management. Mr. Dosch started his experience with the University system in Mr. Dosch s experience includes his current position of Controller for the University, six years as the financial accounting director for the University, and four years as the accounting manager for the University of Alaska Foundation. Mr. Dosch earned a B.B.A. in Accounting from Gonzaga University in 1990 and an M.B.A. with an emphasis in capital markets from the University of Alaska Fairbanks in Wei Guo, CPA, started as Senior Accountant for the University Statewide System in June Prior to this position, she served as manager for a public accounting firm in Fairbanks, Alaska for the period January 2009 through May 2011, and as a supervisor for the same accounting firm from August 2006 through December Ms. Guo s experience also includes six years with a public accounting firm in Durham, North Carolina. Ms. Guo earned a Master of Accounting degree from University of North Carolina at Chapel Hill in

22 Carol L. Griffin was appointed Vice Chancellor for Administrative Services at the University of Alaska Southeast (UAS) in August She joined the University in 1980 as Assistant Professor of Public Administration. Ms. Griffin has held several positions at the University of Alaska Southeast including Director of Outreach Education, Director of Personnel and Affirmative Action and the Director of Administrative Services. Prior to coming to the University, Ms. Griffin was a researcher with the Bureau of Public Affairs Research at the University of Idaho. Ms. Griffin earned a M.P.A. from the University of Idaho in Pat Pitney was appointed Vice Chancellor for Administrative Services at the University of Alaska Fairbanks in October Prior to this appointment, she served as Vice President for Planning and Budget Development for the University Statewide System. Ms. Pitney began her University of Alaska experience in 1991 as a research analyst and held management and leadership positions at the Statewide System for institutional research, information systems implementation, budgeting, planning, and accountability. Ms. Pitney earned a Bachelor s of Science degree in Engineering Physics from Murray State University in 1987 and an M.B.A. from the University of Alaska Fairbanks in William H. Spindle, Ed.D., is Vice Chancellor for Administrative Services at the University of Alaska Anchorage (UAA), a position he has been in since June Prior to this appointment, Dr. Spindle was the Director of Business Services beginning in Dr. Spindle began his University of Alaska experience in 1997, serving as the Deputy Chief Procurement Officer and the Interim Chief Procurement Officer until Prior to coming to the University, he served for twenty-five years in the Air Force managing business organizations. His final position was as the Director of Contracting for Pacific Air Force Command. He retired in 1997 as a colonel. Dr. Spindle earned his bachelor s degree in Engineering Management from the United States Air Force Academy in 1972, an M.B.A. from Boston University in 1978 and his Ed.D. from the University of La Verne in FACULTY AND EMPLOYEES The University's faculty and staff total 4,601 regular employees and 3,843 temporary employees as of fall Members of the University's full-time regular instructional and research faculty total 1,371, 68% of which hold tenure or tenure-track faculty appointments as of fall Including part-time faculty, there were 340 professors, 405 associate professors, 612 assistant professors and 1,207 instructors as of fall As of fall 2010, there were approximately 373 employees affiliated with the University of Alaska Federation of Teachers (UAFT), 958 employees affiliated with the United Academics American Association of University Professors / American Federation of Teachers (AAUP/AFT), 1,030 employees affiliated with the United Academic-Adjuncts, and approximately 283 employees affiliated with the Alaska Higher Education Crafts and Trades Employees. The University also has 9 fire fighters associated with Fairbanks Fire Fighters Association, International Association of Fire Fighters AFL CIO. The University considers itself to have good relationships with its various employee groups. For fiscal year 2010, total University compensation and benefits was $476.8 million, including union affiliated employees. 16

23 THE STUDENT BODY STUDENT ENROLLMENT Approximately ninety percent of the University students are residents of the State of Alaska. The remaining students come from the other 49 states and many foreign countries. The University believes enrollment will increase modestly for the near future because more Alaskan students are attending college in-state. For the various academic years ending June 30, the University awarded the following degrees and certificates: June Doctorate Masters Baccalaureate Associate Certificates , , , , , ,616 1, Source: University of Alaska Institutional Research Office. The following table indicates the total fall enrollment of undergraduate and graduate students, and the full-time equivalent and total credit hours for the fall semester, for all students attending the University. Full-time equivalent for undergraduate is calculated as 15 student credit hours for courses below the 500 level and 12 student credit hours for courses at the 500 level and above for graduate, excluding audited credit hours. This represents the average number of credits needed to receive an undergraduate degree in four years, or a graduate degree in two years. The enrollment figures listed for the years are the fall semester closing figures that are available in January following the end of the semester. The fall 2011 closing enrollment figures will not be available until January 2012, but are monitored periodically during the semester. Table 5 UNIVERSITY OF ALASKA On Campus Fall Enrollment Head Count Full-Time Equivalent Total Under- Under- Credit Hours Fall graduate Graduate Total graduate Graduate Total Taken ,520 2,191 32,711 16,303 1,151 17, , ,248 2,243 32,491 16,236 1,161 17, , ,538 2,298 32,836 16,279 1,262 17, , ,955 2,211 32,166 16,126 1,225 17, , ,944 2,384 32,328 16,296 1,311 17, , ,121 2,589 33,710 17,195 1,395 18, , ,824 2,656 34,480 17,841 1,451 19, , * 32,356 2,814 35,170 18,281 1,590 19, ,887 * Fall enrollment numbers are projected numbers based on Early Semester Reports (ESR) as of September 12, 2011, subject to change. Source: University of Alaska Institutional Research Office. 17

24 Table 6 shows the number of applications accepted and the number of students enrolled for the fall semesters. Fall semester includes the prior summer term students. Table 6 UNIVERSITY OF ALASKA Student Applications and Enrollment Fall Applications Percent Students Percent Semester Received Accepted Accepted Enrolled Enrolled Freshman ,409 4, % 2, % ,252 3, % 2, % ,962 4, % 2, % ,650 4, % 3, % ,025 5, % 3, % 2011* 6,667 5, % 3, % Transfer Undergraduates ,708 1, % 1, % ,782 1, % 1, % ,012 2, % 1, % ,395 2, % 1, % ,461 2, % 1, % 2011* 3,284 2, % 1, % Total Undergraduates ,117 5, % 4, % ,034 5, % 4, % ,974 6, % 4, % ,045 7, % 5, % ,486 7, % 5, % 2011* 9,951 7, % 5, % Graduate Students , % % , % % , % % , % % , % % 2011* 1, % % * 2011 are projected numbers based on Early Semester Reports (ESR) as of September 12, 2011, subject to change. Other program applicants are not counted here, for example, students applying as non-degree seeking students. Source: University of Alaska Institutional Research Office. 18

25 TUITION AND FEES Tuition is assessed on a per credit hour basis. There is no fee cap or consolidated fee. Table 7 UNIVERSITY OF ALASKA Student Tuition per Credit Hour Student Classification * -13 Undergraduate lower div, resident $109 $120 $128 $134 $141 $147 $154 $165 Undergraduate upper div, resident Undergraduate lower div, nonresident Undergraduate upper div, nonresident Graduate, resident Graduate, nonresident * Tuition increase per credit hour was approved by the Board of Regents in December Source: University of Alaska Institutional Research Office. The following table sets forth the average annual student tuition and registration fees for full-time students for the academic years indicated. Unless otherwise stated, figures reflect fees at the University of Alaska Fairbanks campus, which provide the substantially higher fees associated with resident population, health insurance, health services, recreation facilities, and a more active student government. In academic year , average annual registration fees at Fairbanks are $948, compared to $776 at Anchorage and $720 at Southeast. Table 8 UNIVERSITY OF ALASKA Average Annual Full-Time Student Tuition and Registration Fees* Student Classification Undergraduate, resident $ 4,538 $ 4,818 $ 5,173 $ 5,408 $5,703 $6,093 Undergraduate, nonresident 12,908 13,788 14,593 15,308 16,293 17,733 Graduate, resident 7,197 7,682 8,104 8,492 9,138 9,954 Graduate, nonresident 13,893 14,858 15,640 16,412 17,610 19,266 *Assumes registration fees at Fairbanks. Undergraduate tuition is based on 15 credit hours per semester, with one half taken at the lower division rate and the other half taken at the upper division rate. Graduate tuition is based on 12 credit hours per semester. Source: University of Alaska Institutional Research Office. 19

26 TOTAL COSTS UNDERGRADUATE RESIDENTS The annual cost of room and board and the total educational costs for two semesters for a resident undergraduate student taking 15 credits of lower division (100 and 200 level) and 15 credits of upper division (300 and above) courses are shown in Table 9. The figure is based on double-room, doubleoccupancy in a campus residence hall at the University of Alaska Fairbanks. Figures exclude travel. Table 9 UNIVERSITY OF ALASKA Annual Student Room and Board and Total Undergraduate Educational Costs Academic Year Room and Board $ 6,030 $ 6,030 $ 6,630 $ 6,802 $ 6,960 $6,960 Tuition, Fees, Books & Supplies 5,238 5,518 5,908 6,708 7,103 7,493 Combined Total $11,268 $11,548 $12,538 $13,510 $14,063 $14,453 Source: University of Alaska Institutional Research Office. FINANCIAL AID STATISTICS, COLLEGE SAVINGS PLAN AND SCHOLARS PROGRAM Financial aid for the last several aid years (fall, spring and summer semesters) is shown below. Decrease in Alaska Student Loans is due primarily to increased volume of Pell Grants and Federal Stafford loans, which offer more favorable rates than the Alaska Student Loan Program. Table 10 UNIVERSITY OF ALASKA Summary of Finanical Aid By Aid Year: Fall - Spring - Summer Semesters ($'s in 000's) Estimates Scholarships, Grants and Awards Federal - Pell Grants $ 8,917.7 $ 9,839.5 $ 11,213.8 $ 17,234.7 $ 24,593.2 Federal - Other 1, , , , ,175.6 UA Foundation 1, , , , ,069.2 Institutional 7, , , , ,070.9 Other 8, , , , ,565.1 Total $ 28,592.5 $ 31,176.9 $ 36,179.5 $ 44,434.9 $ 54,474.0 Loans Alaska Student Loans $ 21,673.5 $ 19,613.8 $ 17,999.9 $ 6,227.5 $ 4,298.9 Federal 41, , , , ,142.1 Other 1, , , ,270.4 Total $ 64,653.9 $ 66,137.5 $ 72,571.0 $ 75,626.4 $ 81,711.4 Student Employment $ 17,774.0 $ 18,123.6 $ 18,866.8 $ 20,363.1 $ 20,857.4 Total Financial Aid $ 111,020.4 $ 115,438.0 $ 127,617.3 $ 140,424.4 $ 157,042.8 Source: University of Alaska Institutional Research Office. 20

27 Section 529 College Savings Plan. In 1991, the Alaska legislature established the Advance College Tuition program within the University of Alaska. The program was one of the first of what would eventually become known as Section 529 College Savings Plans. In 1997, the University modified the program to comply with Section 529 of the Internal Revenue Code. In 2001, the University established the Education Trust of Alaska ( Trust ) and converted the program from a prepaid tuition program to a full-range college savings and investment program. T. Rowe Price was selected as program manager. The Trust offers three separately marketed 529 college savings plans: The UA College Savings Plan, marketed directly to investors within the State of Alaska; the T. Rowe Price College Savings Plan nationally marketed directly to investors; and John Hancock Freedom 529 nationally marketed through authorized financial advisors. Each of these plans is open to eligible individuals regardless of state of residence. Each of these plans has different investment options. Since the Trust was established in May 2001, assets under management in the program have grown from $25 million to approximately $4.4 billion at June 30, 2011, with over 21,000 Alaskans having established accounts in the plan. UNIVERSITY OF ALASKA SCHOLARS PROGRAM The University of Alaska Scholars Program ( Program ) is a four-year scholarship given to the top ten percent of graduates from qualified Alaska high schools each year. The Program offers an $11,000 scholarship for use at any University campus. Scholars receive $1,375 per semester for a total of eight semesters. Starting in 1999 the Program is considered a significant reason for the increase of Alaska college-bound seniors attending the University. As of fall 2010, there were 1,982 UA Scholars enrolled. ALASKA PERFORMANCE SCHOLARSHIP PROGRAM AND ALASKADVANTAGE EDUCATION GRANT For academic year , the State of Alaska created the Alaska Performance Scholarship program administered by Alaska Commission on Postsecondary Education. This $6 million program is a meritbased scholarship that provides an opportunity for any future Alaska high school graduate who meets a core set of requirements to receive funding to pursue college and/or career training in Alaska. There are three maximum award levels, $4,755 a year, $3,566 a year, and $2,378 a year. The scholarship provides additional incentives for Alaska high school graduates to pursue higher education with the University. The AlaskAdvantage Education grant is also new for academic year This $3 million program provides need-based financial assistance to eligible Alaska students attending qualifying postsecondary educational institutions in Alaska. A portion of funds is set aside for applicants with exceptional academic preparation and for those enrolled in workforce shortage programs. Grant awards range from a minimum of $500 to a maximum of $3,000 per academic year for students who have qualifying unmet financial need. FACILITIES AND CAPITAL PROGRAM LIBRARIES AND MUSEUM The University's library collection contains more than 2.3 million book volumes with extensive collections housed at Fairbanks, Anchorage and other sites. The University's system wide general library collection of books, periodicals and documents is approximately 1.5 million titles. The expanded University of Alaska Museum of the North located on the Fairbanks campus opened in Fall 2005, and has brought national and international media attention to Alaska. The $42 million museum expansion project doubled the size of the existing museum to approximately 90,000 gross square feet. 21

28 RESIDENTIAL AND OTHER The University maintains and operates 71 student residential buildings having a combined designed capacity of approximately 2,970 beds as well as an additional 31 faculty and staff housing units. Other ancillary facilities of the University include a $60 million central co-generation power plant in Fairbanks, printing services and copy centers, motor pools, bookstores, health services and telecommunication centers. PHYSICAL PLANT FOR ACADEMIC AND ADMINISTRATIVE ACTIVITIES The table below sets forth the balance of non-depreciated book value of investments in physical properties of the University. Adjusted value was calculated utilizing R.S. Means "Historical Cost Index" (209 Cities Index, Anchorage), adjusting project cost, including design, forward from original construction and/or revitalization date. (For more information about capital assets, see Note 6 in Appendix A University of Alaska Audited Financial Statements Fiscal Year Ending June 30, 2010). Original Adjusted Average Age June Project Cost Gross Value Square Feet Buildings weighted by GSF 2010 $1,196,687,000 $1,917,449,000 6,607, years Infrastructure, leasehold and other improvements have a historical cost of $110.6 million as of June CAPITAL PROGRAM Major construction projects of the University are funded primarily by State of Alaska capital appropriations, including state-issued general obligation bonds, and University revenue bonds. For fiscal year 2012, State of Alaska capital appropriations include $37.5 million for deferred maintenance, $8.0 million for renewal and miscellaneous projects and $34 million for a sports arena on the Anchorage campus. The deferred maintenance appropriation of $37.5 million represents the second installment of a five year program by the Governor to address such needs across state agencies. Receipt of future appropriations is dependent on legislative approval. Fiscal year 2011, capital appropriations included $39.6 million for deferred maintenance and $207 million for University projects that were included as part of a $397.2 million authorization of State general obligation bonds that was approved by Alaska voters in November The $207 million in University projects include, $88 million for Life Sciences Facility at University of Alaska Fairbanks, $14.5 million for Career & Technical Education Center at Kenai Peninsula College, $16 million for Student Housing at Kenai Peninsula College, $23.5 million for Valley Center for Art & Learning at Mat- Su College, $5 million for campus renovation and renewal at Prince William Sound Community College and $60 million for a sports arena at University of Alaska Anchorage. In December 2010, the State sold $200 million of general obligation bonds to provide initial funding for the University and other projects that were authorized in the November referendum. For fiscal year 2010, the State of Alaska appropriated $3.2 million for renewal and renovation projects at various campuses in the University system. State of Alaska capital appropriations for fiscal year 2009 totaled $107.2 million, which included $46 million to construct a 65,000 gross square foot health sciences facility in Anchorage, $15 million for the planning, design and site preparation for the new sports arena in Anchorage and $46.2 million for renewal/renovation and other smaller projects. 22

29 The Board of Regents has an ongoing capital program which includes renovation of existing facilities, new construction, planning and design for new construction, and reducing deferred maintenance and renewal backlog. The capital plan for fiscal year 2012 through 2021 supports the University s strategic plan and the campus academic and research plans. The University continues to monitor its deferred and imminent renewal needs and makes it a top priority budget request to the legislature. For fiscal year 2012, in excess of $900 million has been identified as deferred or imminent renewal needs for the University's approximately 6.6 million square feet of physical plant that has an adjusted gross value of approximately $1.9 billion. RETIREMENT PLANS Substantially all regular employees participate in either the State of Alaska Public Employees' Retirement System ( PERS ) or the State of Alaska Teachers' Retirement System ( TRS ), each of which is a multiple-employer public pension and retirement plan, or the University of Alaska Optional Retirement Plan ( ORP ), a single-employer defined contribution plan. In addition, substantially all regular employees participate in the University of Alaska Pension Plan, a supplemental single-employer defined contribution plan. None of the retirement systems or plans owns any notes, bonds or other instruments of the University. PERS and TRS are administered by the State of Alaska, through the Department of Administration. In 2005, the State Legislature enacted legislation to close PERS and TRS defined benefit plans and established defined contributions plans, each with a health care component, for new employees. In 2008, the State Legislature enacted legislation which shifted to the State of Alaska more of the cost of funding the unfunded accrued actuarial liability ("UAAL") of PERS and TRS. This legislation set employer contribution rates, including those of the University, at 22 percent of total payroll for PERS and percent of total payroll for TRS. The additional amount necessary to fully fund the plans at the actuarial rates, in excess of the 22 percent and percent has been paid by the State of Alaska. In 2011 and 2010 the State of Alaska made payments totaling $ million and $ million directly to the retirement plans on-behalf of the University. A more complete description of the PERS and TRS plans, including UAAL, is available at (1). The University contributed $62.6 million and $61.8 million to its retirement and pension plans during fiscal year 2011 and 2010, respectively, not including the on-behalf payments made by the State of Alaska. (For more information about the retirement plans, see Note 12 in Appendix A University of Alaska Audited Financial Statements Fiscal Year Ending June 30, 2010). On June 5, 2009 a group of beneficiaries of the ORP filed a class-action lawsuit entitled Abel Bult-Ito et al., v. State of Alaska, University of Alaska, et al., Case No. 3AN CI, in the Superior Court for the State of Alaska, Third Judicial District at Anchorage, against the State of Alaska and the University. The group of beneficiaries alleges, among other things, that State legislation passed in 2007 and 2008 unconstitutionally diminished contributions to the ORP. The case is currently set for trial the week of January 30, The likelihood of success on the merits of the case is unknown as is the financial impact on the University. (1) Reference to the State of Alaska's website is provided for convenience only. The reference is not a hyperlink and, by this reference, the State of Alaska's website is not incorporated into this Official Statement. 23

30 STATE APPROPRIATIONS TO THE UNIVERSITY The University receives financial assistance for both operations and designated capital improvements through appropriations by the State Legislature. The University is treated like a State agency for the purposes of budget and fiscal control. However, unlike State agencies, the University maintains its own treasury functions, collects its own revenues, invests its funds, and makes its own disbursements. Annually, the State Legislature appropriates authority to the University to receive and expend specified revenues up to specific levels or amounts. All revenues, except State general fund authorizations and other forms of State support, are received directly into the University's treasury. State funded authorizations are received from the State on a monthly basis at approximately one-twelfth of the annual operating authorization. State funded capital appropriations are generally received based on a reimbursement basis. Transfers between appropriations without State Legislative authorization are prohibited. However, legislative authorization for the expenditure of revenues received in excess of originally authorized levels may be obtained during the interim between legislative sessions under procedures specified by State statute. Appropriations to the University are for two types: operating and capital. Operating appropriations authorize expenditure of all current revenues and lapse at the end of the fiscal year. State funded current revenues at this time include State general funds and funds from the Mental Health Trust Authority. Supplemental appropriations amend current year appropriations of the prior Legislative session. Capital appropriations are generally for facilities, equipment or specified projects, and have an expiration date five years into the future unless extended. The State Legislature may authorize operating and capital expenditures separately, together, or individually, but may not combine appropriations and substantive legislation in the same bill. Typically, however, operating and capital authorizations to the University are appropriated separately in general operating and capital budget bills. Additional authorizations to the current year operating budget are appropriated in a supplemental bill. Any of these bills may include reappropriations of balances remaining in prior operating or capital authorizations. Although the Legislature can restrict any appropriation to a specified use, in the last decade, the annual operating appropriations for the University have been very broad in scope and contain few, if any, restrictions. Essentially, the appropriated revenues must be expended prudently. The titles for supplemental, capital, and reappropriations are generally very specific as to the purpose for which they are appropriated and must be expended accordingly. The Governor has the authority to veto or reduce the amount of an appropriation, but does not have the authority to increase or to change the legislative intent or purpose of it. Commencing in fiscal year 2009, the University has seven operating appropriations, essentially one for each major administrative unit. Transactions between appropriations are not allowed unless a reimbursable services agreement is approved or an exemption has been granted by the State s Office of Management and Budget. 24

31 Table 11 UNIVERSITY OF ALASKA Summary of State Appropriations (1) For Fiscal Years Ending June 30 ($ s in 000 s) (3) 2012 Operating: General Operating Bill (1) $279,449 $289,236 $307,303 $323,202 $335,296 $346,073 Separate/Special Legislation (2) 7,965 10,791 13,467 11,624 11,348 10,030 Total $287,414 $300,027 $320,770 $334,826 $346,644 $356,103 Capital: Capital Expenditures - New $ 58,500 $ 3,750 $ 61,300 $ - $ 219,000 $34,000 Revitalization, Facility Renewal, Deferred Maintenance 48,725 8,475 45,823 3,200 39,550 45,504 Separate/Special Legislation Total $107,940 $ 12,865 $ $ 3,200 $258,550 $79,504 1) Appropriations exclude receipt authority for other sources such as general revenue bonds, federal grants and contracts that may be used for operating activity, purchase of equipment or capital construction. 2) Fiscal years 2007 through 2012 each include approximately $1.413 million in appropriations for reimbursement of a portion of the debt service on the Series K Bonds in accordance with Section of the Alaska Statutes. 3) In 2011, $207 million of the $219 million capital appropriation represents projects that have or will be funded from State general obligation bonds. See CAPITAL PROGRAM herein. Source: University of Alaska. For fiscal years 2011, 2010, 2009 and 2008 operating state appropriations do not include pension payments of $ million, $ million, $ million and $ million, respectively, which the State of Alaska made directly to PERS and TRS on-behalf of the University. These payments are being made as part of State legislation aimed at reducing the unfunded liabilities of these pension plans. INVESTMENTS AND LIQUIDITY The Alaska Statutes and Board of Regents policy provide the University with broad authority to invest funds. Generally, operating funds are invested according to the University s liquidity needs. It is the University s investment strategy to reduce risk, enhance liquidity and safeguard University investments from market exposure. As a result, the University s investment portfolio mainly consists of cash or safer, shorter term investments with high liquidity. 25

32 At June 30, 2011 the University had operating investments totaling $123.8 million, primarily consisting of cash on hand, savings, money market funds, an overnight repurchase agreement and investments in fixed income bonds. The University s fixed income bonds include corporate bonds, U.S. Treasury bonds, and Federal agency bonds which are held in the name of the University. Cash, savings, certificates of deposit and money market investments represent 36.7% of total operating investment portfolio. Fixed income bonds with thirty to ninety days maturity comprised 39.1% of the portfolio and the remaining 24.2% are fixed income bonds with three to five years maturity. The money market mutual funds are all rated AAA. As of August 2011, all of the University s fixed income bond holdings had investment grade ratings and 79% of its holdings were in the two highest rating categories of Moody s and Standard & Poor s. As of June 30, 2011 and 2010, the University s operating funds were as follows ($ s in 000 s): Investment Type Cash and Deposits $ 11,093 $ 4,290 Repurchase Agreement 22,199 22,951 Hedge Funds 851 Money Market Mutual Funds 12,168 80,859 Fixed Income Bonds - Short Term 48,397 Fixed Income Bonds - Long Term 29,919 $ 123,776 $ 108,951 GIFTS, ENDOWMENTS AND FUND RAISING By Board of Regents policy, all gifts to the University are received and invested by the University of Alaska Foundation ( Foundation ). The University and the Foundation also directly solicit privately funded grants in support of the University s mission. Private gift and fund raising efforts are directed toward program support and toward building endowments. THE UNIVERSITY OF ALASKA FOUNDATION The Foundation is a public nonprofit corporation established as a public charity in 1974 to solicit, manage, and invest donations for the exclusive benefit of the University. The Foundation is a tax-exempt organization as described in Subsection 501(c)(3) of the Internal Revenue Code, and donations made to the Foundation are deductible according to schedules established under income and estate tax regulations. The Foundation is legally separate and distinct from the University and is governed by its own board of trustees. This twenty to thirty member board establishes the Foundation's investment policy for the endowments and non-endowed funds, and oversees the distribution of the Foundation's assets to its sole beneficiary, the University system. A separately appointed Investment Committee manages the Foundation s investments. Most scholarship, endowment and other privately established funds to benefit the University are under the care of the Foundation. In fiscal year 1998, the Foundation established the Consolidated Endowment Fund to combine for investment purposes the University s Land Grant Endowment Trust Fund and the Foundation s Pooled Endowment Fund. The Consolidated Endowment Fund is managed by the Foundation (by the above mentioned Investment Committee) under an agreement with the University, and each year a separate financial statement and audit is made of the Consolidated Endowment Fund. 26

33 Beginning July 1, 2006, the Foundation implemented an administrative fee on gifts and endowments to support the Foundation s operations as follows: Gifts All cash gifts are assessed 1% of the gift value at the time of the gift. Noncash gifts are assessed 1% at the time of conversion to cash by the Foundation, based on the proceeds received. Endowments 1% is assessed by the Foundation annually based on the asset valuation at the end of the previous calendar year. Land Grant Trust Fund Assets.50% is assessed by the Foundation annually based on the asset valuation of the University s land grant trust fund assets invested by the Foundation as of the end of the previous calendar year. A portion of the administrative fees assessed by the Foundation are allocated to the campuses to support development efforts to increase private support. Table 12 UNIVERSITY OF ALASKA FOUNDATION Summary Finanical Information For Fiscal Years Ending June 30 ($'s in 000's) Unaudited Revenues, gains and other support Donations and Bequests $ 20,034 $ 29,131 $ 29,810 $ 15,942 $ 15,801 Investment income 3,747 3,383 2,118 1,955 2,403 Net realized and unrealized gains and losses 17,183 (6,202) (31,614) 7,174 17,383 Other (includes transfers from the University) 1,065 1,056 1,686 1,483 1,602 Actuarial adjustment of remainder trust obligations (9) (13) (36) (100) 299 Total $ 42,020 $ 27,355 $ 1,964 $ 26,454 $ 37,488 Distributions to the University $ 15,511 $ 15,429 $ 17,700 $ 13,290 $ 13,729 Net Assets: Unrestricted $ 43,757 $ 41,379 $ 31,233 $ 33,832 $ 23,532 Temporarily restricted 71,759 81,280 67,349 62,732 79,443 Permanently restricted 50,445 53,245 59,695 72,310 87,024 Total Net Assets $ 165,961 $ 175,904 $ 158,277 $ 168,874 $ 189,999 Source: University of Alaska Foundation Audited Financial Statements. 27

34 Overall, total donations and bequests received by the Foundation were $15.8 million in fiscal year 2011, compared to $15.9 million in fiscal year There was an 8% increase in the number of donors from the previous year. The number of donors supporting the University has increased by 51% since fiscal year The estimated fair value of the Foundation s investments with quarterly or less frequent redemption periods as of June 30, 2011, totaled $27.1 million. These investments were all held within the Consolidated Endowment Fund. The limitations and restrictions on the Foundation s or the Consolidated Endowment Fund s ability to redeem or sell these investments vary by investment and range from required notice periods (generally sixty to ninety days after initial lock-up periods) for certain absolute return and equity hedge funds, to specified terms at inception (generally twelve years) associated with private capital interests. ENDOWMENT FUNDS As of June 30, 2011, the University held financial and real estate endowment net assets of $178.7 million separate from the Foundation. Of this amount $177.1 million represented Land Grant Trust Fund net assets held by the University. In 1997, the Board of Regents adopted a total return endowment management and investment policy, and by agreement with the University of Alaska Foundation, authorized the Foundation to manage the trust funds in accordance with that policy. Land Grant Trust property and other assets consist of real property and timber and other rights. By Acts of Congress in 1915 and 1929, approximately 110,000 acres of land was granted to the territory of Alaska to be held in trust for the benefit of the University. The lands were managed by the Territory, and later the State of Alaska. In accordance with a 1982 agreement, the lands were subsequently transferred to the Board of Regents, as trustee. In 1982 and 1988 certain State lands including timber and other rights were transferred to the trust as replacement for lands disposed of or adversely affected during the period of administration by the territory and the State. The net proceeds from timber, land and other rights are deposited in the land grant endowment trust fund. At June 30, 2011 approximately 82,000 acres were held in trust at no basis because fair value at the date of transfer was not determinable. Funds derived from the net sales, leases, exchanges and transfers of the University's trust lands must be deposited for investment in the University s land grant endowment trust fund as provided by Alaska Statute Assets of the fund are invested and earnings of the fund are made available to the University for expenditure in accordance with principles established under Alaska Statute , Board of Regents' policy and University regulations which provide: (1) that a portion of the annual earnings will be utilized to manage the University's lands, (2) that a portion of the annual earnings will be set aside in order to maintain the purchasing power of the endowment funds, and (3) a portion will be designated as a spending allowance to be transferred to the Natural Resources Fund for the purpose of funding projects and programs necessary to establish or enhance the quality of the University s academic programs, research or public service. The annual spending allowance of the Land Grant Trust Fund is based on four and one-half percent of a five year moving average of the invested balance. Withdrawals of net earnings to meet the spending allowance are limited to the unexpended accumulated net earnings of the endowments. 28

35 Table 13 UNIVERSITY OF ALASKA Endowment Fund - Summary Financial Information For Fiscal Years Ending June 30 ($'s in 000's) Unaudited Unrestricted Endowment Income $ 6,295 $ 5,476 $ 6,118 $ 3,343 $ 2,725 Land Grant Trust Assets Cash and Investments $ 147,525 $ 143,004 $ 105,840 $ 112,191 $ 129,017 Land Sale Receivables 6,430 4,583 4,433 4,189 5,319 Real Property 39,088 38,844 42,476 42,445 42,736 Total Land Grant Trust Net Assets 193, , , , ,072 Other Endowment Fund Net Assets 1, ,580 Total Endowment Fund Net Assets $ 194,158 $ 187,421 $ 153,738 $ 159,815 $ 178,652 Source: University of Alaska. GRANTS AND CONTRACTS Research programs at the University take advantage of the University's unique locations in the sub-arctic of Alaska, with access to the Pacific Ocean, the Arctic Ocean, glaciers and permafrost areas. Approximately 90 percent of the research activities at the University take place on the Fairbanks campus and its outlying research sites. Major recipients were the Geophysical Institute, the School of Fisheries and Ocean Sciences, the Institute of Northern Engineering, the Agricultural and Forestry Experiment Station, and the Institute of Arctic Biology. Major contributors were the National Science Foundation, Department of Education, Department of Health and Human Services, National Aeronautics and Space Administration, Department of Agriculture and Department of Commerce. In addition to research carried out in its academic departments, the University has a number of research centers that focus upon problems of the Arctic. These include the International Arctic Research Center that was established in 1999 with bi-lateral collaboration from a Japanese non-profit organization to conduct research on the Arctic and global climate change; the environmental impact of human activities; the development of renewable and non-renewable resources; energy sources and the cultural understanding and preservation of peoples of the North. Major initiatives continue in the areas of health and the biological and biomedical sciences with support from the National Science Foundation for the Experimental Program to Stimulate Competitive Research (EPSCoR) and the National Institutes of Health, National Center for Research Resources support for the Center for Alaska Native Health Research (CANHR) and IDeA Network of Biomedical Research Excellence (INBRE). 29

36 In August 2008, after 30 years of planning and development, the National Science Foundation (NSF) awarded the University of Alaska Fairbanks (UAF) $2.5 million for the first phase of funding for the construction of the Alaska Region Research Vessel (ARRV). In May 2009 UAF received a $148.1 million award from the NSF to construct the ARRV of which $28.5 million were expended through August 1, As designed, the ARRV will be a 242 foot, multipurpose oceanographic research vessel capable of operating in seasonal ice and open regions around Alaska. The ARRV will be owned by NSF and operated by UAF on behalf of the entire ocean sciences community. The estimated completion date for the ARRV is As of August 1, 2011, the University received $197.0 million in awards from the American Recovery and Reinvestment Act (ARRA) of February 2009 (also known as stimulus fund) which covers 69 projects. The University expended $40.6 million and $8.8 million of the ARRA award during fiscal year 2011 and 2010, respectively. The largest award is for the Alaska Region Research Vessel described above and $27 million was spent on this project during fiscal year The remaining awards are mainly for research activities the University conducts in the normal course of its mission and are for periods of one to five years. Table 14 summarizes annual expenditures of federal grants and contracts by major federal agencies. Table 14 UNIVERSITY OF ALASKA Expenditures of Federal Grants and Contracts by Agency For Fiscal Years Ending June 30 ($'s in 000's) Estimated Unaudited Federal Agency National Science Foundation $ 25,579 $ 31,114 $ 31,941 $ 38,517 $ 64,196 Department of Education 20,423 18,287 17,817 23,990 23,074 Department of Health and Human Services 15,266 13,793 14,380 16,330 18,420 National Aeronautics and Space Admin. 11,249 10,946 12,308 14,476 18,040 Department of Agriculture 15,570 12,693 12,694 12,230 10,420 Department of Commerce 14,489 12,744 13,580 10,335 11,277 General Services Administration 13,782 14,154 9,602 11,654 8,922 Department of Defense 12,005 8,408 8,303 9,758 8,966 Department of the Interior 8,905 8,876 8,762 8,773 11,808 Other Federal Agencies 13,555 14,057 13,260 12,742 17,377 $ 150,823 $ 145,072 $ 142,647 $ 158,805 $ 192,500 Source: University of Alaska Fund Accounting. Table 15 provides information on grants and contracts for operating activities over the past several fiscal years identified by source. Capital grants and contracts are also identified on Table 15. The Facilities and Administrative Cost Recovery, a component of Pledged Revenues shown on Table 2, is included as part of the revenues associated with grants and contracts shown on Table

37 Table 15 UNIVERSITY OF ALASKA Statements of Revenues, Expenses and Changes in Net Assets For the Years Ended June 30, 2010, 2009, 2008 and 2007 (in thousands) Operating revenues Student tuition and fees $ 119,846 $ 107,424 $ 99,921 $ 91,473 less scholarship allowances (13,506) (9,213) (7,838) (7,004) 106,340 98,211 92,083 84,469 Federal grants and contracts 138, , , ,245 State and local grants and contracts 24,519 24,098 22,074 19,536 Private grants and contracts 45,728 46,902 45,985 47,859 Sales and services, educational departments 4,073 3,850 3,345 3,688 Sales and services, auxiliary enterprises, net of scholarship allowances of $2,018, $1,483, $1,264, and $1,246 39,225 39,990 39,192 38,849 Other 14,457 15,687 14,457 14,837 Total operating revenues 372, , , ,483 Operating expenses Instruction 204, , , ,175 Academic support 57,688 54,642 52,174 50,659 Research 133, , , ,283 Public service 40,401 37,820 36,063 32,926 Student services 50,171 48,170 45,437 41,890 Operations and maintenance 59,339 61,186 54,983 50,216 Institutional support 94,942 90,184 82,611 69,562 Student aid 20,965 17,937 14,879 13,566 Auxiliary enterprises 40,228 39,724 39,410 38,681 Depreciation 58,228 55,649 56,883 57,455 Pension expense - NPO, OPEB and state on-behalf payments 17,975 30,502 29,003 5,389 Total operating expenses 778, , , ,802 Operating loss (405,354) (403,042) (369,700) (329,319) Nonoperating revenues (expenses) State appropriations 334, , , ,414 State on-behalf contributions - pension 17,975 30,502 28,464 - Investment earnings (losses) 3,810 (8,142) 4,408 11,656 Endowment investment income (loss) 12,953 (24,048) ,964 Interest on debt (4,852) (4,986) (4,895) (4,295) Federal student financial aid 18,275 11,812 9,848 8,927 Other nonoperating expenses (1,905) (4,428) (3,423) (4,534) Net nonoperating revenues 381, , , ,132 Loss before other revenues, expenses, gains or losses (24,272) (81,562) (34,307) (187) Capital appropriations, grants and contracts 61,951 63,617 85,660 40,782 Income (loss) before extraordinary item 37,679 (17,945) 51,353 40,595 Extraordinary item - Pension expense - net pension obligations 31, Net increase in net assets 37,679 13,380 51,353 40,595 Net assets Net assets - beginning of year 952, , , ,855 Net assets - end of year $ 989,862 $ 952,183 $ 938,803 $ 887,450 Source: Audited Financial Statements. Note: Prior years figures have been restated to conform to current year presentation 31

38 Table 16 UNIVERSITY OF ALASKA Statements of Net Assets Fiscal Years Ending June 30, 2010, 2009, 2008 and 2007 (in thousands) Assets Current assets: Cash and cash equivalents $ 99,390 $ 81,728 $ 8,642 $ (524) Short-term investments 6,129 26,184 26,463 39,317 Accounts receivable, less allowance of $7,614 $6,573, $5,239 and $4,678 70,369 64,523 69,084 61,679 Other assets Inventories 7,963 7,220 8,110 8,544 Total current assets 184, , , ,700 Noncurrent assets: Restricted cash and cash equivalents 1,531 5,091 19,692 4,092 Notes receivable 4,189 4,433 4,583 5,329 Endowment investments 116, , , ,713 Land Grant Trust property and other assets 44,532 44,674 45,001 46,272 Long-term investments 7,652 7,875 83,922 83,503 Education Trust of Alaska 9,339 7,986 8,569 8,324 Capital assets, net of accumulated depreciation of $760,343, $715,776, $681,520 and $634, , , , ,894 Total noncurrent assets 1,046,930 1,015,059 1,099,140 1,033,127 Total assets 1,231,472 1,195,373 1,212,213 1,142,827 Liabilities Current liabilities: Accounts payable and accrued expenses 24,904 19,221 18,797 20,276 Accrued payroll 28,346 24,966 21,292 20,852 Deferred revenue and deposits 18,886 17,086 15,032 15,625 Accrued annual leave 11,752 11,320 10,459 9,926 Deferred lease revenue - current portion 1,281 1,281 1,281 1,281 Long-term debt - current portion 6,763 6,473 9,659 6,278 Insurance and risk management 22,763 20,134 19,283 18,168 Total current liabilities 114, ,481 95,803 92,406 Noncurrent liabilities: Deferred revenue - capital 2,875 10,519 5,781 6,361 Deferred lease revenue 3,523 4,804 6,085 7,366 Long-term debt 114, , , ,732 Net pension and OPEB obligations - 31,325 30,786 Security deposits and other liabilities 5,980 5,846 7,397 5,726 Total noncurrent liabilities 126, , , ,971 Total liabilities 241, , , ,377 Net Assets Invested in capital assets, net of related debt 738, , , ,665 Restricted: Expendable 16,614 12,233 46,707 55,587 Nonexpendable 128, , , ,114 Unrestricted 106, ,136 93,644 88,084 Total net assets $ 989,862 $ 952,183 $ 938,803 $ 887,450 Source: Audited Financial Statements. Note: Prior years figures have been restated to conform to current year presentation. 32

39 CERTAIN LEGAL MATTERS Legal matters incident to the authorization, issuance and sale of the Bonds are subject to the approving legal opinion of Wohlforth, Brecht, Cartledge & Brooking, Anchorage, Alaska, Bond Counsel to the University. The proposed form of the opinion is included herein as Appendix C. TAX MATTERS In the opinion of Bond Counsel, based on an analysis of existing laws, regulations, rulings and court decisions and assuming, among other things, compliance with certain covenants, interest on the Bonds is excludable from gross income for federal income tax purposes. The Bonds are not private activity bonds, and interest on the Bonds is not an item of tax preferences for purposes of determining alternative minimum taxable income for individuals or corporations under the Code. However, interest on the Bonds is taken into account in determining adjusted current earnings for purposes of the federal alternative minimum tax imposed on certain corporations. Bond Counsel is also of the opinion based on existing laws of the State as enacted and construed that interest on the Bonds is excludable from taxation by the State except for transfer, estate and inheritance taxes and except to the extent that inclusion of said interest in computing the federal corporate alternative minimum tax may affect the corresponding provisions of the State corporate income tax. The Code imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The University has covenanted to comply with certain restrictions designed to assure that interest on the Bonds is excludable from federal gross income. Failure to comply with these covenants may result in interest on the Bonds being included in federal gross income, possibly from the date of issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds may adversely affect the tax status of interest on the Bonds. Although Bond Counsel will render an opinion that interest on the Bonds is excludable from gross income for federal income tax purposes, the ownership or disposition of, or the accrual or receipt of interest on, such Bonds may otherwise affect an owner s federal or State tax liability. The nature and extent of these other tax consequences will depend upon the owner s particular tax status and the owner s other items of income or deduction. Bond Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. Owners of the Bond should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Bonds, which may include original issue discount, original issue premium, purchase at market discount or at a premium, taxation upon sale, redemption or other disposition, and various withholding requirements. Backup Withholding. Interest on tax-exempt obligations such as the Bonds are in many cases subject to information reporting in a manner similar to interest paid on taxable obligations. Backup withholding may be imposed on payments to any bondholder who fails to provide certain required information including an accurate taxpayer identification number to any person required to collect such information pursuant to Section 6049 of the Code. This reporting requirement does not in and of itself affect or alter the excludability of interest on the Bonds from gross income for federal income tax purposes or any other federal tax consequence of purchasing, holding or selling tax-exempt obligations. 33

40 Original Issue Discount. The Bonds maturing October 1, 2028 through October 1, 2032, inclusive (the Discount Bonds ) are being sold at an original issue discount. The difference between the initial public offering prices, as set forth on the cover page, of such Discount Bonds and their stated amounts to be paid at maturity, constitutes original issue discount treated as interest which is excluded from gross income for federal income tax purposes to the same extent as interest on the Bonds. The amount of original issue discount which is treated as having accrued with respect to such Discount Bond is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (including its sale, redemption or payment at maturity). Amounts received upon disposition of such Discount Bond which are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes. Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount Bond, on days that are determined by reference to the maturity date of such Discount Bond. The amount treated as original issue discount on such Discount Bond for a particular semiannual accrual period is equal to the product of (i) the yield to maturity for such Discount Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such Discount Bond at the beginning of the particular accrual period if held by the original purchaser, less the amount of any interest payable for such Discount Bond during the accrual period. The tax basis is determined by adding to the initial public offering price on such Discount Bond the sum of the amounts that have been treated as original issue discount for such purposes during all prior periods. If such Discount Bond is sold between semiannual compounding dates, original issue discount which would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. Owners of Discount Bonds should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount Bond. Original Issue Premium. The Bonds maturing October 1, 2012 through October 1, 2027, inclusive (the Premium Bonds ) are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium Bond s term using constant yield principles, based on the purchaser s yield to maturity or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser s yield to the call date and giving effect to the call premium). As premium is amortized, the purchaser s basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser s basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult with their tax advisors with respect to the determination and treatment of amortizable premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. Changes in Federal and State Tax Law. From time to time, there are legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to above or adversely affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely 34

41 affect the market value of the Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Bonds or the market value thereof would be impacted thereby. Purchasers of the Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Bonds and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation, regulatory initiatives or litigation. On September 12, 2011, President Obama submitted to Congress the "American Jobs Act of 2011" (the "Proposed Act"). The Proposed Act includes a number of proposed changes to the Code, including certain limitations on tax-exempt interest on tax-exempt bonds for couples with adjusted gross income of $250,000 or more a year, or $200,000 for single taxpayers for tax years beginning on or after January 1, The limitations would affect obligations that are outstanding on the enactment date of the Proposed Act or that are issued after such enactment. Bond Counsel s opinion is not a guarantee of a result and is not binding on the Internal Revenue Service ( IRS ), rather, the opinion represents its legal judgment based upon its review of existing statutes, regulations, published rulings, and court decisions and the representations and covenants on the University. The IRS has an ongoing program of auditing the tax-exempt status of the interest on governmental obligations. If an audit of the Bonds is commenced, under current procedures, the IRS is likely to treat the University as the taxpayer, and the owners of the Bonds (the Owners ) would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the University may have different or conflicting interests from the Owners. Public awareness of any future audit of the Bonds could adversely affect the value and the liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome. ABSENCE OF LITIGATION At the time of the original delivery of the Bonds, the University will deliver a no-litigation certificate to the effect that no litigation or administrative action or proceeding is pending, or, to the knowledge of the appropriate University officials, threatened, restraining or enjoining, or seeking to restrain or enjoin, the issuance and delivery of the Bonds, the effectiveness of the legislation authorizing the issuance of the Bonds, or the collection of revenues and fees for the payment of the debt service on the Bonds or contesting or questioning the proceedings and authority under which the Bonds have been authorized and are to be issued, sold, executed or delivered, or the validity of the Bonds. FINANCIAL ADVISOR The University has retained Kaplan Financial Consulting, Inc. as financial advisor in connection with the issuance of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. Kaplan Financial Consulting, Inc. is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. Kaplan Financial Consulting, Inc. is registered as a Municipal Advisor with the Municipal Securities Rulemaking Board. 35

42 RATINGS Prior to the sale of the Bonds, Moody's Investors Service Inc. and Standard and Poor's Rating Services, a Division of The McGraw-Hill Companies, Inc. have assigned ratings of Aa2 and AA-, respectively, to the Bonds, based on their research and investigation of the University. Each rating agency has also assigned a stable outlook to the University. Such ratings and outlook reflect only the respective views of the rating organizations and any desired explanation of the significance of the ratings may be obtained from each rating agency. There is no assurance that such ratings will be maintained for any given period of time or that one or both ratings may not be changed, suspended or withdrawn entirely by the rating agencies if, in the judgment of such rating agencies, circumstances so warrant. Ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of information. Any such change in or suspension of or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. FINANCIAL STATEMENTS The financial statements of the University for the fiscal year ended June 30, 2010, were examined by KPMG LLP, independent certified public accountants, whose report thereon appears in Appendix A. KPMG LLP, has not been engaged to perform and has not performed, since the date of its report included herein, any procedures on the financial statements addressed in that report. KPMG LLP also has not performed any procedures relating to this Official Statement, nor has it consented to inclusion of the financial statements in this Official Statement. UNDERWRITING The University offered the Bonds at public sale on October 5, Wells Fargo Bank, National Association (the Underwriter ) submitted the best bid at the sale of the Bonds. The University awarded the contract for sale of the Bonds to the Underwriter at a price of $51,966, (reflecting an underwriting discount of $977, and net original issue premium of $4,074,167.10). The Underwriter has represented to the University that the Bonds have been subsequently re-offered to the public initially at the yield or price set forth on the cover of this Official Statement. CONTINUING DISCLOSURE Pursuant to Securities and Exchange Commission Rule 15c2-12, under the Securities and Exchange Act of 1934, as the same may be amended from time to time (the Rule ), the University will execute and deliver a Continuing Disclosure Certificate substantially in the form attached hereto as Appendix D for the benefit of the beneficial owners of the Bonds. The University is in compliance with its prior written undertakings under the Rule. 36

43 MISCELLANEOUS The foregoing summaries, descriptions and references do not purport to be comprehensive or definitive, and such summaries, descriptions and references are qualified in their entirety by reference to each statute, document, exhibit or other materials summarized or described. The instruments and other materials referred to in this Official Statement may be examined, or copies thereof will be furnished in reasonable amounts, upon written request to the Statewide Finance Office of the University of Alaska, 910 Yukon Drive, Suite 208, P.O. Box Fairbanks, Alaska Statements made in this Official Statement involving matters of opinion, forecasts or estimates, whether or not expressly so stated, are intended as such and not as representations of fact. The Appendices are integral parts of this Official Statement and must be read with all other parts of this Official Statement. EXECUTION OF OFFICIAL STATEMENT The execution and delivery of this Official Statement has been authorized by the University. This Official Statement is not to be construed as a contract or agreement between the University and the purchasers or holders of the Bonds. UNIVERSITY OF ALASKA By /s/ Myron J. Dosch Controller 37

44 THIS PAGE INTENTIONALLY LEFT BLANK

45 APPENDIX A UNIVERSITY OF ALASKA AUDITED FINANCIAL STATEMENTS FISCAL YEAR ENDED JUNE 30, 2010

46 THIS PAGE INTENTIONALLY LEFT BLANK

47 UNIVERSITY OF ALASKA (A Component Unit of the State of Alaska) Financial Statements June 30, 2010 and 2009 (With Independent Auditors Report Thereon)

48 This page intentionally left blank

49 University of Alaska (A Component Unit of the State of Alaska) Financial Statements June 30, 2010 and 2009 Table of Contents Page Management s Discussion and Analysis 1 Independent Auditors Report 11 University of Alaska Statements of Net Assets 13 University of Alaska Foundation Statements of Financial Position 15 University of Alaska Statements of Revenues, Expenses and Changes in Net Assets 17 University of Alaska Foundation Statements of Activities 18 University of Alaska Statements of Cash Flows 20 Notes to Financial Statements 22

50 This page intentionally left blank

51 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying accountants report) Introduction The following discussion and analysis provides an overview of the financial position and activities of the University of Alaska (university) for the years ended June 30, 2010 (2010) and June 30, 2009 (2009), with selected comparative information for the year ended June 30, 2008 (2008). This discussion has been prepared by management and should be read in conjunction with the financial statements including the notes thereto, which follow this section. Using the Financial Statements The university s financial report includes the basic financial statements of the university and the financial statements of the University of Alaska Foundation (foundation), a legally separate, nonprofit component unit. The three basic financial statements of the university are: the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets and the Statement of Cash Flows. These statements are prepared in accordance with generally accepted accounting principles and Governmental Accounting Standards Board (GASB) pronouncements. The university is presented as a business-type activity. GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities, establishes standards for external financial reporting for public colleges and universities and classifies resources into three net asset categories unrestricted, restricted, and invested in capital assets, net of related debt. The University of Alaska Foundation is presented as a component unit of the university in accordance with GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units. The foundation s financial statements include the Statement of Financial Position and the Statement of Activities and these statements are presented as originally audited according to generally accepted accounting principles and Financial Accounting Standards Board (FASB) pronouncements. The foundation was established to solicit donations and to hold and manage such assets for the exclusive benefit of the university. Resources managed by the foundation and distributions made to the university are governed by the foundation s Board of Trustees (operating independently and separately from the university s Board of Regents). The component unit status of the foundation indicates that significant resources are held by the foundation for the sole benefit of the university. However, the university is not accountable for, nor has ownership of, the foundation s resources. Statement of Net Assets The Statement of Net Assets presents the financial position of the university at the end of the fiscal year and includes all assets and liabilities of the university. The difference between total assets and total liabilities (net assets) is one indicator of the financial condition of the university, while the change in net assets is an indicator of whether the financial condition has improved or declined during the year. 1

52 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying accountants report) A summarized comparison of the university s assets, liabilities and net assets at June 30, 2010, 2009 and 2008 follows ($ in thousands): Assets: Current assets $ 184,542 $ 180,314 $ 113,073 Other assets 183, , ,979 Capital assets, net of depreciation 863, , ,161 Total assets 1,231,472 1,195,373 1,212,213 Liabilities: Current liabilities 114, ,481 95,803 Noncurrent liabilities 126, , ,607 Total liabilities 241, , ,410 Net assets: Invested in capital assets, net of debt 738, , ,700 Restricted expendable 16,614 12,233 46,707 Restricted nonexpendable 128, , ,752 Unrestricted 106, ,136 93,644 Total net assets $ 989,862 $ 952,183 $ 938,803 Overall total net assets of the university increased $37.7 million, or four percent. This increase was mainly due to a $29.3 million increase in net capital assets. The change in net capital assets is discussed in more detail in the Capital and Debt Activities section below. There were no significant changes in 2010 with the university s operating deposits and investments. Substantially all funds at June 30, 2010 were invested in bank deposits, government securities and money market funds. After the global financial crisis in 2009, management focused on liquidity and safety for its operating funds, with an eye towards restructuring its portfolio. As a result, subsequent to June 30, 2010, approximately $75 million was invested in a new fixed income portfolio. The balance of the operating funds is invested in deposits, collateralized repurchase agreements and money market funds. Note 2 of the financial statements provides more information about deposits and investments and associated risks. Endowment investments at June 30, 2010 were $116.4 million as compared to $111.0 million at June 30, The fund earned an investment return of 9.47 percent in Distributions from the endowment totaling $5.5 million in 2010 were primarily used to fund the University of Alaska Scholars Program and land management efforts. The endowment investments are invested in a consolidated endowment fund that is managed by the University of Alaska Foundation. Total liabilities are categorized as either current liabilities or noncurrent liabilities on the Statement of Net Assets. Current liabilities are those that are due or will likely be paid in the next fiscal year. They are primarily comprised of accounts payable, accrued payroll and other expenses, insurance and risk management payables, debt and student deposits. Noncurrent assets are comprised mostly of long-term debt. Total liabilities decreased $1.6 million during 2010 to a total of $241.6 million. 2

53 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying accountants report) A reduction of debt explains the majority of the change in liabilities. Other accrual and deferred revenue amounts remained relatively consistent with prior year amounts. Total debt outstanding decreased from $128.0 million at June 30, 2009 to $121.3 million at June 30, The balance was reduced by scheduled principal payments and the refunding of previously issued general revenue bonds. The only new debt was for equipment financing that totaled $249.8 thousand. Unrestricted net assets decreased $435 thousand from June 30, 2009 to June 30, At year end, $83.4 million of the $106.7 million total was designated for specific purposes. See Note 7 of the financial statements for a detailed list of these designations. Fiscal Year 2009 Comparisons (Statement of Net Assets) Significant comments about changes between 2008 and 2009 that were noted in fiscal year 2009 Management s Discussion and Analysis are summarized below: The Statement of Net Assets reflected an overall increase in net assets of 1.4 percent, or $13.4 million. Overall, total assets of the university decreased $16.8 million, or 1.4 percent from 2008 to The major change was in the endowment and non-endowment investments that suffered significant losses in 2009 and decreased $52.6 million, or 18 percent from These declines were offset by an increase in net capital assets of $41.8 million. Total liabilities decreased $30.2 million largely due to the write off of the net pension and other post-employment benefit obligations of $31.3 million. The university significantly changed the allocation of its operating investment portfolio in 2009 in response to the global financial crisis. In general, management liquidated its long term investments and converted them to cash or safer, shorter term, investments. These actions were part of a strategy to reduce risk, enhance liquidity and safeguard university investments from additional market exposure. As a result, cash and cash equivalents increased $73.1 million to $81.7 million at June 30, The majority of these funds, $69.8 million, were invested in a highly liquid government securities fund. Long-term investments were reduced from $83.9 million at June 30, 2008 to $7.9 million at June 30, Endowment investments at June 30, 2009 were $111.0 million as compared to $145.2 million at June 30, This decrease was primarily caused by a 24 percent investment loss in 2009 as a result of the global financial crisis. Net pension and OPEB obligations totaling $31.3 million were written off effective July 1, 2008, when the Public Employees Retirement System (PERS) plan changed from an agent to a multiple-employer plan. GASB does not require these obligations to be recorded for multipleemployer plans. The effect of this change is recorded on the Statement of Revenues, Expenses and Changes in Net Assets as an extraordinary item and is further discussed in Note 12, Pension Plans. 3

54 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying accountants report) Total debt outstanding decreased from $136.7 million at June 30, 2008 to $128.0 million at June 30, The change consists of principal payments totaling $6.0 million plus payoff of the Bunnell Park property note payable totaling $3.8 million, less new equipment financings of $1.1 million. Statement of Revenues, Expenses and Changes in Net Assets The Statement of Revenues, Expenses and Changes in Net Assets presents the results of operations for the university as a whole. Revenues, expenses and other changes in net assets are reported as either operating or nonoperating. Significant recurring sources of university revenue, such as state appropriations and investment earnings, are defined by GASB Statement No. 35 as nonoperating. A summarized comparison of the university s revenues, expenses and changes in net assets for the years ended June 30, 2010, 2009 and 2008 follows ($ in thousands): Operating revenues $ 372,933 $ 356,025 $ 346,193 Operating expenses (778,287) (759,067) (716,476) Operating loss (405,354) (403,042) (370,283) Net nonoperating revenues 381, , ,976 Loss before other revenues, expenses, gains, or losses (24,272) (81,562) (34,307) Other revenues, expenses, gains or losses 61,951 94,942 85,660 Increase in net assets 37,679 13,380 51,353 Net assets at beginning of year 952, , ,450 Net assets at end of year $ 989,862 $ 952,183 $ 938,803 The Statement of Revenues, Expenses and Changes in Net Assets reflects an overall increase in net assets of four percent, or $37.7 million. Major changes in revenues and expenses in 2010 are described below. Capital appropriations and capital grant and contract revenue decreased from $63.6 million in 2009 to $62.0 million in Revenue from capital sources is generally recognized as expenditures occur, so the amount shown on the Statement of Revenues, Expenses and Changes in Net Assets is a reflection of capital construction activity. For further discussion on capital activity, see the Capital and Debt Activities section which follows. State of Alaska general fund appropriations continue to be the single major source of revenue for the university, providing $334.8 million in 2010, as compared to $320.8 million in Historically, the state has funded the university at an amount equal to or above the prior period s appropriation. In addition, the state made on-behalf pension payments of $18.0 million directly to the Public Employees Retirement System (PERS) and Teachers Retirement System (TRS) defined benefit plans on behalf of the university. The state is paying the cost above the required employer contribution rate to fully fund the plans at the actuarial computed rate. Employer contribution rates have been capped at percent and percent for PERS and TRS, respectively. The on-behalf payments decrease from 2009 was primarily caused by the actuarial computed rates for PERS and TRS decreasing by 7.57 and 4.64 percentage points, respectively. The pension payments were made on-behalf of the university and are presented as revenue and 4

55 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying accountants report) expense in the university s financial statements in accordance with GASB Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance. A comparison of operating and nonoperating revenues by source for 2010, 2009 and 2008 follows: Operating and Nonoperating Revenues (excluding capital) by Year State appropriations 44.0% 46.7% 43.4% Government grants and contracts 23.2% 23.2% 22.9% Tuition and fees, net 14.0% 14.3% 13.3% Private grants and contracts Auxiliary enterprises, net Other 6.0% 6.8% 6.7% 5.1% 5.8% 5.7% 5.3% -1.2% 3.9% FY2010 (total revenue = $760.8 million) FY2009 (total revenue = $686.9 million) FY2008 (total revenue = $690.5 million) State on-behalf payments 2.4% 4.4% 4.1% Grant and contract revenue from federal, state, local and private sponsors totaled $208.8 million for 2010, as compared to $198.3 million in the prior year. The growth is primarily attributed to additional grants received from the American Recovery and Reinvestment Act (ARRA) which totaled $14.1 million of which $8.8 was related to grants and contracts and $5.2 million was student financial aid. Gross student tuition and fee revenue totaled $119.9 million in 2010 as compared to $107.4 million in This was due in large part to a five percent increase in tuition rates for students for academic year Student headcount increased 4.3 percent to 33,710 students from Fall 2008 to Fall

56 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying accountants report) A comparison of operating expenses by functional and natural classification for selected fiscal years follows (see Note 16 of the financial statements for more information): Operating Expenses Functional Classification (in millions) FY2010 FY2009 FY2008 Instruction $ % $ % $ % Student Services % % % Student Aid % % % Academic Support % % % Student and Academic $ % $ % $ % Public Service % % % Research % % % Operations and Maintenance % % % Institutional Support % % % Auxiliary Enterprises % % % NPO,OPEB, State On-Behalf % % % Depreciation % % % Total Operating Expenses $ % $ % $ % Fiscal Year 2010 Functional Classification Student aid 3% Academic support 7% Public service 5% Student services 7% Research 17% Instruction 26% State on-behalf pension expense 2% Auxiliary enterprises 5% Operations and maintenance 8% Institutional support 12% Depreciation 8% 6

57 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying accountants report) Salaries and employee benefits increased five percent, or $23.1 million, in Employee benefits, such as pension plan contributions and health care costs, increased 1.9 percent and comprised $2.5 million of the change. Salaries and wages increased 6.5 percent, or $20.6 million. Other expenses are substantially less in 2010 as compared to 2009 and 2008 as a result of recognizing state on-behalf pension payments totaling $18.0 million, $30.5 million, and $28.5 million, respectively. Operating Expenses Natural Classification (in millions) FY2010 FY2009 FY2008 Salaries and Employee Benefits $ % $ % $ % Contractual Services % % % Supplies and Materials % % % Other % % % Student Aid % % % Depreciation % % % $ % $ % $ % Fiscal Year 2010 Natural Classification Contractual services 18% Salaries and employee benefits 61% Supplies and materials 8% Other 3% Student aid 3% Depreciation 7% A portion of university resources applied to student accounts for tuition, fees, or room and board are not reported as student aid expense, but are reported in the financial statements as a scholarship allowance, directly offsetting student tuition and fee revenue or auxiliary revenue. Allowances totaled $15.5 million in 2010 and $10.7 million in In addition to the allowances, students participate in governmental financial aid loan programs. The loans are neither recorded as revenue or expense in the financial statements, but are recorded in the Statements of Cash Flows as direct lending receipts totaling $69.4 million and $75.0 million in 2010 and 2009, respectively. 7

58 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying accountants report) Institutional support expenses fluctuate due to the accounting method used to record employee benefits. The university employs a central benefits pool concept, and uses a staff benefit rate, to charge estimated employee benefits, such as pension and healthcare costs, added to labor recorded in the various functional expense categories. Institutional support expenses are impacted when the amounts charged exceed, or are less than, actual benefits paid to third parties. Over recovery or under recovery of charges in one year are built into the rate building process the following year. When considered in total, operating expenses across all functional categories include the correct amount of employee benefit expense each fiscal year. Investment returns from all non-endowment sources totaled $3.8 million in 2010 compared to an $8.1 million loss in 2009, as a result of the global financial crisis. Endowment investments experienced a $9.7 million gain in 2010 as compared to a $34.4 million loss in The significant losses in 2009 were the result of the global financial crisis. Endowment gifts, sales and other proceeds totaled $3.2 million in fiscal year 2010 as compared to $10.4 million in The 2009 balance included the sale of real property near the Mat-Su campus totaling $6.1 million. This category also includes yield from, or sales of, trust land, timber and mineral interests, the net proceeds of which are generally deposited to the land grant endowment trust fund. Fiscal Year 2009 Comparisons (Statement of Revenues, Expenses and Changes in Net Assets) Significant comments about changes between 2008 and 2009 that were noted in fiscal year 2009 Management s Discussion and Analysis are summarized below: The Statement of Revenues, Expenses and Changes in Net Assets reflected an overall increase in net assets of 1.4 percent, or $13.4 million. The major changes in revenue and expense are described below. Revenue earned for capital construction decreased from $85.7 million in 2008 to $63.6 million in The decrease is attributed to fewer dollars being expended on the University of Alaska Anchorage s Integrated Science Building (ISB) in 2009 as compared to The ISB was completed in August Gross student tuition and fee revenue totaled $107.4 million in 2009 as compared to $99.9 million in This was due in large part to a five percent increase in tuition rates for students for academic year Salary and employee benefit costs increased 6.3 percent, or $27.0 million, in Net investment losses from all non-endowment sources totaled $8.1 million in 2009 as a result of the global financial crisis. Endowment investments experienced a $34.4 million loss in 2009 as compared to a $4.6 million loss in 2008 due to the global financial crisis. 8

59 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying accountants report) Endowment gifts, sales, and other proceeds totaled $10.4 million in fiscal year 2009 as compared to $5.6 million in The increase is mainly attributed to the $6.1 million sale of real property located near the Mat-Su campus. Capital and Debt Activities The University of Alaska has continued to modernize various facilities and to build new facilities to address emerging state needs. Net capital asset additions totaled $73.9 million in 2010, as compared with $76.1 million in 2009 and $101.9 million in These capital additions primarily comprise replacement, renovation, code corrections and new construction of academic and research facilities, as well as investments in equipment and information technology. State capital appropriations for 2010 and 2009 were $3.2 million and $107.2 million, respectively. At June 30, 2010, $114.5 million remains unexpended from current and prior year capital appropriations and general revenue bond proceeds, of which $65.0 million is committed to existing construction contracts. The balance is for projects still in design or preconstruction, or is held for contingencies for work in progress. Construction in progress at June 30, 2010 totaled $59.2 million and includes the following major projects: At the University of Alaska Anchorage, construction is underway on the Health Sciences Building. Once complete, this $46.5 million, 65,321 square-feet building will accommodate the academic programs of the School of Nursing Biomedical Programs and Allied Health Sciences. It will feature offices and classrooms, interactive simulation labs, seminar rooms and student activity spaces. The building is scheduled to be completed in August The University of Alaska Fairbanks began construction in fiscal year 2010 of a new research vessel, named Sikuliaq. The vessel construction is being funded by a $148.1 million award from the National Science Foundation. As designed, the vessel will be a 254 foot multipurpose oceanographic research ship capable of operating in seasonal ice and open regions around Alaska. Once constructed, the university will manage the vessel operations to support the National Science Foundation and other federally funded science activities. The ship is expected to be complete in Debt At June 30, 2010, total debt outstanding was $121.3 million, comprised of $100.5 million in general revenue bonds, $18.4 million in a note payable, and $2.4 million in bank financing contracts. In May 2010, Moody's Investors Service changed the university s credit rating of Aa3 to Aa2 with stable outlook as part of their rating recalibration program. The change is not considered an upgrade nor does it reflect a new assessment of the university s creditworthiness. In January 2008, Standard & Poor s affirmed its rating of AA- with stable outlook. In fiscal year 2010, the university issued general revenue refunding bonds Series P totaling $14,045,000 to refund and redeem the outstanding maturities of Series H and J general revenue bonds. The current refunding resulted in an economic gain of $1,487,000 and total debt service payments over the next 13 years will decrease by $1,813,000. 9

60 MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying accountants report) In previous years, other bonds were issued to finance construction of student residences at three campuses, the West Ridge Research Building, student recreation centers, a research facility to house the International Arctic Research Center, the acquisition and renovation of several properties adjacent to or near the university s campuses, additions to the university s selfoperated power, heat, water and telephone utility systems in Fairbanks, purchase of the University Center Building in Anchorage, and to refund previously issued general revenue bonds and other contractual obligations in order to realize debt service savings. The university has traditionally utilized tax exempt financings to provide for its capital needs or to facilitate systematic renewals. Short-term lines of credit or working capital is available to provide interim cash flow financing for facilities intended to be funded with general revenue bond proceeds. Capital Activities Looking Ahead State of Alaska capital appropriations for fiscal year 2011 total $51.55 million. The majority of the funding, $37.5 million, is designated for deferred maintenance needs across the university system. Another $12 million was allocated for engineering facility planning and design at the Fairbanks and Anchorage campuses. In addition, the legislature approved a general obligation bond measure that was passed by Alaskan voters on November 2, The measure includes university projects totaling $207 million, of this $88 million is for the University of Alaska Fairbanks Life Sciences Classroom and Laboratory Facility and $60 million for the Community Arena and Athletic Facility at the Anchorage campus. Various community campuses will also benefit through renovation or new construction of buildings. The bonds will be an obligation of the state. Other Economic and Financial Conditions The following is a description of currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position (net assets) or results of operations (revenues, expenses, and other changes in net assets) of the university. During the September 2010 meeting the Board of Regents approved a tuition increase beginning in the Fall of Undergraduate courses for the 100 to 200 levels will increase five percent and 300 to 400 levels will increase ten percent. 10

61 KPMG LLP Suite West Eighth Avenue Anchorage, AK Independent Auditors Report The Board of Regents University of Alaska: We have audited the accompanying basic financial statements of the University of Alaska and its discretely presented component unit (University), a component unit of the State of Alaska, as of and for the years ended June 30, 2010 and 2009 as listed in the table of contents. These financial statements are the responsibility of the University s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the University of Alaska and its discretely presented component unit at June 30, 2010 and 2009, and the respective changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued our report dated November 11, 2010 on our consideration of the University of Alaska s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in accessing the results of our audit. The Management s Discussion and Analysis, on pages 1 through 10 is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. November 11, 2010 KPMG LLP, is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

62 12 This page intentionally left blank

63 UNIVERSITY OF ALASKA (A Component Unit of the State of Alaska) Statements of Net Assets June 30, 2010 and 2009 (in thousands) Assets Current assets: Cash and cash equivalents $ 99,390 $ 81,728 Short-term investments 6,129 26,184 Accounts receivable, less allowance of $7,614 in 2010 and $6,573 in ,369 64,523 Inventories 7,963 7,220 Other assets Total current assets 184, ,314 Noncurrent assets: Restricted cash and cash equivalents 1,531 5,091 Notes receivable 4,189 4,433 Endowment investments 116, ,011 Land Grant Trust property and other assets 44,532 44,674 Long-term investments 7,652 7,875 Education Trust of Alaska 9,339 7,986 Capital assets, net of accumulated depreciation of $760,343 in 2010 and $715,776 in , ,989 Total noncurrent assets 1,046,930 1,015,059 Total assets 1,231,472 1,195,373 Liabilities Current liabilities: Accounts payable and accrued expenses 24,904 19,221 Accrued payroll 28,346 24,966 Deferred revenue and deposits 18,886 17,086 Accrued annual leave 11,752 11,320 Deferred lease revenue - current portion 1,281 1,281 Long-term debt - current portion 6,763 6,473 Insurance and risk management 22,763 20,134 Total current liabilities 114, ,481 Noncurrent liabilities: Deferred revenue - capital 2,875 10,519 Deferred lease revenue 3,523 4,804 Long-term debt 114, ,540 Security deposits and other liabilities 5,980 5,846 Total noncurrent liabilities 126, ,709 Total liabilities 241, ,190 Net Assets Invested in capital assets, net of related debt 738, ,398 Restricted: Expendable 16,614 12,233 Nonexpendable 128, ,416 Unrestricted (see Note 7) 106, ,136 Total net assets $ 989,862 $ 952,183 The accompanying notes are an integral part of the financial statements. 13

64 14 This page intentionally left blank

65 UNIVERSITY OF ALASKA FOUNDATION (A Component Unit of the University of Alaska) Statements of Financial Position June 30, 2010 and 2009 (in thousands) Assets Cash and cash equivalents $ 38,116 $ 30,609 Interest receivable Contributions receivable 14,251 17,746 Escrows receivable Inventory Other assets Pooled endowment funds 102,012 89,486 Other long-term investments 16,869 23,092 Total assets $ 172,025 $ 161,721 Liabilities Due to the University of Alaska $ 1,718 $ 2,118 Other liabilities Remainder trust obligations Term endowment liability 1,000 1,000 Total liabilities 3,151 3,444 Net Assets Unrestricted 33,832 31,233 Temporarily restricted 62,732 67,349 Permanently restricted 72,310 59,695 Total net assets 168, ,277 Total liabilities and net assets $ 172,025 $ 161,721 The accompanying notes are an integral part of the financial statements. 15

66 16 This page intentionally left blank

67 UNIVERSITY OF ALASKA (A Component Unit of the State of Alaska) Statements of Revenues, Expenses and Changes in Net Assets For the Years Ended June 30, 2010 and 2009 (in thousands) Operating revenues Student tuition and fees $ 119,846 $ 107,424 less scholarship allowances (13,506) (9,213) 106,340 98,211 Federal grants and contracts 138, ,287 State and local grants and contracts 24,519 24,098 Private grants and contracts 45,728 46,902 Sales and services, educational departments 4,073 3,850 Sales and services, auxiliary enterprises, net of scholarship allowances of $2,018 in 2010 and $1,483 in ,225 39,990 Other 14,457 15,687 Total operating revenues 372, ,025 Operating expenses Instruction 204, ,304 Academic support 57,688 54,642 Research 133, ,949 Public service 40,401 37,820 Student services 50,171 48,170 Operations and maintenance 59,339 61,186 Institutional support 94,942 90,184 Student aid 20,965 17,937 Auxiliary enterprises 40,228 39,724 Depreciation 58,228 55,649 State on-behalf payments 17,975 30,502 Total operating expenses 778, ,067 Operating loss (405,354) (403,042) Nonoperating revenues (expenses) State appropriations 334, ,770 State on-behalf contributions - pension 17,975 30,502 Investment earnings (losses) 3,810 (8,142) Endowment proceeds and investment income (loss) 12,953 (24,048) Interest on debt (4,852) (4,986) Federal student financial aid 18,275 11,812 Other nonoperating expenses (1,905) (4,428) Net nonoperating revenues 381, ,480 Loss before other revenues, expenses, gains or losses (24,272) (81,562) Capital appropriations, grants and contracts 61,951 63,617 Income (loss) before extraordinary item 37,679 (17,945) Extraordinary item - elimination of net pension and OPEB obligations - 31,325 Net increase in net assets 37,679 13,380 Net assets Net assets - beginning of year 952, ,803 Net assets - end of year $ 989,862 $ 952,183 The accompanying notes are an integral part of the financial statements. 17

68 UNIVERSITY OF ALASKA FOUNDATION (A Component Unit of the University of Alaska) Statements of Activities For the years ended June 30, 2010 and 2009 (in thousands) Revenues, gains (losses) and other support Temporarily Permanently Unrestricted Restricted Restricted 2010 Contributions $ 256 $ 12,961 $ 2,725 $ 15,942 Investment income 719 1,236-1,955 Net realized and unrealized investment losses 4,159 3,015-7,174 Other revenues Actuarial adjustment of remainder trust obligations - (28) (71) (99) Losses on disposition of other assets (3) (115) - (118) Administrative assessments 1,473 (888) (43) 542 Support from University of Alaska Net assets released from restriction 10,963 (10,963) - - Total revenues, gains (losses) and other support 18,457 5,387 2,611 26,455 Expenses and distributions Operating expenses 2, ,568 Distributions for the benefit of the University of Alaska 13, ,290 Total expenses and distributions 15, ,858 Excess (deficit) of revenues over expenses 2,599 5,387 2,611 10,597 Transfers between net asset classes - (10,004) 10,004 - Increase (decrease) in net assets 2,599 (4,617) 12,615 10,597 Net assets, beginning of year 31,233 67,349 59, ,277 Net assets, end of year $ 33,832 $ 62,732 $ 72,310 $ 168, The accompanying notes are an integral part of the financial statements.

69 Temporarily Permanently Unrestricted Restricted Restricted 2009 $ 5,808 $ 17,727 $ 6,275 $ 29,810 1,062 1,056-2,118 (12,168) (19,446) - (31,614) (6) (30) (36) - (526) - (526) 1,941 (1,171) (23) 747 1, ,390 11,362 (11,362) - - 9,397 (13,655) 6,222 1,964 1, ,891 17, ,700 19, ,591 (10,194) (13,655) 6,222 (17,627) 48 (276) (10,146) (13,931) 6,450 (17,627) 41,379 81,280 53, ,904 $ 31,233 $ 67,349 $ 59,695 $ 158,277 The accompanying notes are an integral part of the financial statements. 19

70 UNIVERSITY OF ALASKA (A Component Unit of the State of Alaska) Statements of Cash Flows For the Years Ended June 30, 2010 and 2009 (in thousands) Cash flows from operating activities Student tuition and fees, net $ 105,326 $ 99,077 Grants and contracts 210, ,894 Sales and services, educational departments 4,073 3,850 Sales and services, auxiliary enterprises 39,435 40,199 Other operating receipts 13,176 14,406 Payments to employees for salaries and benefits (471,657) (448,630) Payments to suppliers (204,028) (196,853) Payments to students for financial aid (20,993) (17,933) Net cash used by operating activities (323,806) (309,990) Cash flows from noncapital financing activities State appropriations 334, ,985 Other revenue 17,303 10,908 Direct lending receipts 69,391 74,994 Direct lending payments (69,893) (74,927) Net cash provided by noncapital financing activities 351, ,960 Cash flows from capital and related financing activities Capital appropriations, grants and contracts 49,392 76,163 Proceeds from issuance of capital debt 14,045 - Redemption of general revenue bonds (14,535) - Purchases of capital assets (82,471) (100,614) Principal paid on capital debt (6,473) (9,714) Interest paid on capital debt (4,192) (5,473) Net cash used by capital and related financing activities (44,234) (39,638) Cash flows from investing activities Proceeds from sales and maturities of investments 267, ,280 Purchases of investments (243,059) (199,648) Interest received on investments 1,843 3,134 Interest and other sales receipts from endowment assets 4,683 8,387 Net cash provided by investing activities 30,669 76,153 Net increase in cash and cash equivalents 14,102 58,485 Cash and cash equivalents, beginning of the year 86,819 28,334 Cash and cash equivalents, end of the year $ 100,921 $ 86,819 Cash and cash equivalents (current) $ 99,390 $ 81,728 Restricted cash and cash equivalents (noncurrent) 1,531 5,091 Total cash and cash equivalents $ 100,921 $ 86, The accompanying notes are an integral part of the financial statements.

71 UNIVERSITY OF ALASKA (A Component Unit of the State of Alaska) Statements of Cash Flows For the Years Ended June 30, 2010 and 2009 (in thousands) Reconciliation of operating loss to net cash used by operating activities: 2010 Operating loss $ (405,354) $ (403,042) Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation expense 58,228 55,649 State on-behalf payments 17,975 30,502 Changes in assets and liabilities: Accounts receivable, net (398) (3,263) Other assets (32) 115 Inventories (743) 890 Accounts payable and accrued expenses (233) 3,106 Accrued payroll 3,380 3,674 Deferred revenue, deposits from students and others 1,591 1,948 Accrued annual leave Deferred lease revenue - current portion (1,281) (1,281) Insurance and risk management 2, Net cash used by operating activities $ (323,806) $ (309,990) 2009 Noncash Investing, Capital and Financing Activities: For the Year Ended June 30, 2010 Additions to capital assets include $7.1 million expended and capitalized but not paid for at year end. The university financed the purchase of equipment totaling $0.2 million. Book value of capital asset disposals totaled $0.5 million. The university received on-behalf pension payments from the state of Alaska totaling $18.0 million. For the Year Ended June 30, 2009 Additions to capital assets include $2.3 million expended and capitalized but not paid for at year end. The university financed the purchase of equipment totaling $1.0 million. Book value of capital asset disposals totaled $1.8 million. The university received on-behalf pension payments from the state of Alaska totaling $30.5 million. The accompanying notes are an integral part of the financial statements. 21

72 NOTES TO FINANCIAL STATEMENTS June 30, 2010 and Organization and Summary of Significant Accounting Policies: Organization and Basis of Presentation: The University of Alaska (university) is a constitutionally created corporation of the State of Alaska which is authorized to hold title to real and personal property and to issue debt in its own name. The university is a component unit of the State of Alaska for purposes of financial reporting. As an instrumentality of the State of Alaska, the university is exempt from federal income tax under Internal Revenue Code Section 115, except for unrelated business activities as covered under Internal Revenue Code Sections 511 to 514. The University of Alaska Foundation (foundation) is a legally separate, non profit component unit of the university. The foundation was established to solicit donations and to hold and manage such assets for the exclusive benefit of the university. Resources managed by the foundation and distributions made to the university are governed by the foundation s Board of Trustees. Governmental Accounting Standards Board (GASB) Statement No. 39, Determining Whether Certain Organizations Are Component Units, required the university to include the foundation as part of its financial statements to better report resources benefiting the university. The university is not accountable for, nor has ownership of, the foundation s resources. The foundation s financial statements include the Statement of Financial Position and the Statement of Activities and these statements are presented in their original audited format according to Financial Accounting Standards Board (FASB) pronouncements. In preparing the financial statements, management is required to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the statement of net assets. Actual results could differ from those estimates. The more significant accounting and reporting policies and estimates applied in the preparation of the accompanying financial statements are discussed below. GASB Statement No. 35 establishes standards for external financial reporting for public colleges and universities and requires that resources be classified for accounting and reporting purposes into the following net asset categories: Unrestricted Net Assets: Assets, net of related liabilities, which are not subject to externallyimposed restrictions. Unrestricted net assets may be designated for specific purposes by the Board of Regents or may otherwise be limited by contractual agreements with outside parties. Restricted Net Assets: Expendable Assets, net of related liabilities, which are subject to externally-imposed restrictions that may or will be met by actions of the university and/or that expire with the passage of time. Non-expendable Assets, net of related liabilities, which are subject to externally-imposed restrictions requiring that they be maintained permanently by the university. Invested in capital assets, net of related debt Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. 22

73 NOTES TO FINANCIAL STATEMENTS Summary of Significant Accounting Policies: The accompanying financial statements have been prepared on the economic resources measurement focus and the accrual basis of accounting. All significant intra-university transactions have been eliminated. The university reports as a business type activity, as defined by GASB Statement No. 35. Business type activities are those that are financed in whole or in part by fees charged to external parties for goods or services. The university has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The university has elected not to apply FASB pronouncements issued after the applicable date. Cash and Cash Equivalents All highly liquid investments, not held for long-term investment, with original maturities of three months or less are reported as cash and cash equivalents. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Investments Investments are stated at fair value. Investments in fixed income and equity marketable securities are stated at fair value based on quoted market prices. Investments in private partnership interests are valued using the most current information provided by the general partner. General partners typically value privately held companies at cost as adjusted based on recent arms length transactions. Public companies are valued using quoted market prices and exchange rates, if applicable. Real estate partnerships and funds are valued based on appraisals of properties held and conducted by third-party appraisers retained by the general partner or investment manager. General partners of marketable alternatives provide values based on quoted market prices and exchange rates for publicly held securities and valuation estimates of derivative instruments. General partners of oil and gas partnerships use third-party appraisers to value properties. Valuations provided by the general partners and investment managers are evaluated by management and management believes such values are reasonable at June 30, When, in the opinion of management, there has been a permanent impairment in the asset value, the asset is written down to its fair value. Income from other investments is recognized when received. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the statement of net assets. Investments also include securities with contractual cash flows such as asset-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities. The value, liquidity and related income of these securities are sensitive to economic conditions, including real estate value, delinquencies or defaults, or both, and may be adversely affected by shifts in the market s perception of the issuers and changes in interest rates. Long-term investments include those restricted by outside parties as to withdrawal or use for other than current operations, or are designated for expenditure in the acquisition or construction of noncurrent assets or held with an intent not to be used for operations. 23

74 NOTES TO FINANCIAL STATEMENTS Capital Assets Capital assets are stated at cost when purchased and at fair value when donated. Equipment with a unit value of $5,000 or greater is capitalized. Buildings and infrastructure with a unit value of $100,000 or greater are capitalized. Other capitalizable assets with a unit value of $50,000 or greater are capitalized. Certain land and other resources acquired through land grants and donated museum collections for which fair value at date of acquisition was not determinable are reported at zero basis in the financial statements. Depreciation is computed on a straight-line basis with useful lives of building and building components ranging from 12 to 50 years, 10 to 35 years for infrastructure and other improvements, and 5 to 11 years for equipment. Library and museum collections are not depreciated because they are preserved and cared for and have an extraordinarily long useful life. Endowments Endowments consist primarily of the land grant endowment trust fund established pursuant to the 1929 federal land grant legislation and its related inflation proofing fund. Alaska Statute provides that the net income from the sale or use of grant lands must be held in trust in perpetuity. The land grant endowment trust fund balance at the end of 2010 and 2009 was $100.0 million and $94.3 million, respectively. The accumulated net earnings were $3.0 million and $(1.4) million at June 30, 2010 and 2009, respectively. The inflation proofing fund, a quasi-endowment fund included in unrestricted net assets, totaled $20.0 million and $19.5 million at the end of 2010 and 2009, respectively. Alaska Statute provides the Board of Regents with authority to manage the funds under the total return principles which intends to preserve and maintain the purchasing power of the endowment principal. The investable resources of the funds are invested in the consolidated endowment fund, a unitized investment fund. The annual spending allowance is currently based on four and one-half percent of a five-year moving average of the invested balance. Withdrawals of net earnings appreciation to meet the spending allowance are limited to the unexpended accumulated net earnings balance of the preceding December 31. Operating Activities The university s policy for defining operating activities as reported on the statement of revenues, expenses and changes in net assets are those that generally result from exchange transactions such as payments received for providing services and payments made for services or goods received. Certain significant revenue streams relied upon for operations are recorded as non-operating revenues, as defined by GASB Statement No. 35, including state appropriations and investment earnings. Scholarship Allowances Student tuition and fee revenues and certain other revenues from students are reported net of scholarship allowances in the statement of revenues, expenses and changes in net assets. Scholarship allowances are the difference between the stated charge for tuition and room and board provided by the university and the amount paid by the student and/or third parties making payments on the students behalf. 24

75 NOTES TO FINANCIAL STATEMENTS Lapse of State Appropriations Alaska Statutes provide that unexpended balances of one-year appropriations will lapse on June 30 of the fiscal year of the appropriation; however, university receipts in excess of expenditures may be expended by the university in the next fiscal year. University receipts include student tuition and fees, donations, sales, rentals, facilities and administrative cost recovery, interest income, auxiliary and restricted revenues. The unexpended balances of capital appropriations lapse upon completion of the project or upon determination that the funds are no longer necessary for the project. Reclassifications Certain amounts in the June 30, 2009 financial statements have been reclassified for comparative purposes to conform to the presentation in the June 30, 2010 financial statements. 2. Deposits and Investments: Deposits and investments at June 30, 2010 were as follows ($ in thousands): Investment Type Operating Capital Funds Endowment College Savings Program Total Cash and Deposits $ (735) $ - $ 11,757 $ - $ 11,022 Certificates of Deposit 5, ,025 Repurchase Agreement 22, ,951 Multi-Strategy Bond Fund - - 5,708-5,708 Hedge Funds 851-9,582-10,433 Money Market Mutual Funds 80,859 5,297 2, ,469 Equities: Domestic ,573 3,579 29,152 International - - 2,512-2,512 Global ,855-17,855 Emerging Markets - - 4,776-4,776 Debt-related: Federal Agency Fixed Income Funds ,497 5,615 23,112 Alternative Investments: Private Equity Domestic - - 7,104-7,104 Private Equity Int l - - 1,668-1,668 Commodities Natural Resources - - 3,082-3,082 Venture Capital - - 1,683-1,683 Mezzanine - - 1,441-1,441 Real Estate - - 1,435-1,435 Other - - 1,757-1,757 $ 108,951 $ 5,751 $ 116,373 $ 9,339 $ 240,414 25

76 NOTES TO FINANCIAL STATEMENTS Deposits and investments at June 30, 2009 were as follows ($ in thousands): College Investment Type Operating Capital Funds Endowment Savings Program Total Cash and Deposits $ (780) $ - $ 174 $ - $ (606) Repurchase Agreement 15, ,789 Short Term Fund 8, ,860 Intermediate Term Fund 10, ,163 Multi-Strategy Bond Fund - - 5,140-5,140 Government Securities Fund 69, ,797-85,054 Hedge Funds 8,054-15,962-24,016 Money Market Mutual Funds - 8, ,121 Equities: Domestic ,272 3,349 36,621 International ,524-10,524 Global - - 4,033-4,033 Emerging Markets - - 3,735-3,735 Debt-related: Federal Agency Fixed Income Funds ,781 4,392 15,173 Alternative Investments: Commodities - - 1,475-1,475 Natural Resources - - 2,846-2,846 Venture Capital - - 1,376-1,376 Mezzanine - - 1,322-1,322 Real Estate - - 3,320-3,320 Other - - 1,452-1,452 $ 111,016 $ 9,862 $ 111,011 $ 7,986 $ 239,875 Operating funds consist of cash on hand, time deposits, an overnight repurchase agreement and investments in Commonfund pooled investment funds. Alaska Statutes and Board of Regents policy provide the university with broad authority to invest funds. Generally, operating funds are invested according to the university s liquidity needs. The Commonfund is a not-for-profit provider of pooled multi-manager investment vehicles for colleges and universities. The university invests in a variety of these funds according to its investment objectives. Money market mutual funds comprise the largest portion of operating investments. In fiscal year 2010, the university used the Certificate of Deposit Account Registry Service (CDARS) to invest monies into certificates of deposits across many different banking institutions to keep deposits under the Federal Deposit Insurance Corporation insurance limits. 26

77 NOTES TO FINANCIAL STATEMENTS In fiscal year 2011, the remaining balance in the Hedge funds will be paid to participants as the underlying securities mature or fund managers sell their positions. Capital funds include unexpended general revenue bond proceeds and related reserves, advances from state capital appropriations and other reserves designated for capital purposes. General revenue bond reserves totaling $4.7 million are invested with a third party trustee in accordance with terms of a trust indenture, requiring purchase of investment securities that are investment grade. Endowment funds primarily consist of $114.2 million in investable resources of the university s land grant endowment trust fund and are invested in a consolidated endowment fund managed by the University of Alaska Foundation (foundation). These resources are combined with the foundation s pooled endowment funds for investment purposes, and managed by the foundation s investment committee and treasurer on a total return basis in accordance with an investment policy approved by the Board of Regents. College savings program investments include the operating funds of the Education Trust of Alaska, established pursuant to state statute by the Board of Regents to facilitate administration of the state s Internal Revenue Code Section 529 College Savings Program. Program investments are in mutual funds of T. Rowe Price Associates, Inc., the program manager. See Note 4 for further information. Certain funds held in trust for the benefit of the university are not included in the financial statements as the university has only limited control over their administration. These funds are in the custody of independent fiduciaries and at June 30, 2010 had an estimated fair value of approximately $3.3 million. At June 30, 2010, the university has approximately $24.1 million in investments that are not readily marketable. Approximately $23.2 million is invested in the consolidated endowment fund managed by the foundation and $0.9 million is invested in hedge funds within the university s operating funds. These investment instruments may contain elements of both credit and market risk. Such risks include, but are not limited to, limited liquidity, absence of regulatory oversight, dependence upon key individuals, and nondisclosure of portfolio composition. Because these investments are not readily marketable, their estimated value is subject to uncertainty and therefore may differ from the value that would have been used had a ready market for such investments existed. Such difference could be material. Disclosures for deposits and investments are presented according to GASB Statement No. 40, Deposit and Investment Risk Disclosures (GASB 40). Accordingly, the following information addresses various risk categories for university deposits and investments and the investment policies for managing that risk. Foreign Currency Risk: Foreign currency risk is the risk that changes in exchange rates could have an adverse affect on an investment s value for investments denominated in foreign currencies. GASB 40 requires disclosure of value in U.S. dollars by foreign currency denomination and investment type. The university does not have a policy regarding foreign currency risk. At June 30, 2010, the university did not have any foreign currency risk. 27

78 NOTES TO FINANCIAL STATEMENTS Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The university does not have a policy regarding credit risk since it does not normally invest its operating and capital funds in individual debt securities. The consolidated endowment fund investment policy requires all purchases of debt securities to be of investment grade and marketable at the time of purchase unless otherwise approved by the foundation s investment committee. At June 30, 2010, investments consisted of securities with credit quality ratings issued by nationally recognized statistical rating organizations as follows ($ in thousands): College Investment Type Rating Operating Capital Funds Endowment Savings Program Money Market Mutual Fund Aaa $ 80,859 $ 5,297 $ 2,168 $ - Money Market Mutual Funds Not Rated Multi-Strategy Bond Fund AA - - 5,708 - Hedge Funds Not Rated 851-9,582 - Debt Related Federal Agency Aaa Fixed Income Funds Not Rated ,497 5,615 Concentration of Credit Risk: Concentration of credit risk is the risk of loss attributed to the magnitude of the university s investment in a single issuer. GASB 40 requires disclosure when the amount invested with a single issuer, by investment type, exceeds five percent or more of that investment type. At June 30, 2010, the university did not have any material concentrations of credit risk. The consolidated endowment fund investment policy limits debt investments to five percent by issuer (except for mutual and pooled funds and U.S. government and agencies) for each specific managed portfolio within the consolidated endowment fund unless approved by the treasurer. The university does not have a policy regarding concentration of credit risk since it does not normally invest its operating and capital funds in individual debt investments. Custodial Credit Risk: The custodial credit risk for deposits is the risk that, in the event of the failure of a depository institution, the university will not be able to recover deposits or will not be able to recover collateral securities in the possession of an outside party. For investments, custodial credit risk is the risk that, in the event of failure of the counterparty to a transaction, the university will not be able to recover the value of investment or collateral securities in the possession of an outside party. At June 30, 2010, the university does not have custodial credit risk. Deposits of the university are covered by Federal Depository Insurance or securities pledged by the university s counterparty to its repurchase agreement held at the Bank of New York. The collateral is held in the name of the university and at June 30, 2010, provided $0.5 million coverage in excess of deposits. 28

79 NOTES TO FINANCIAL STATEMENTS Interest Rate Risk: Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The university uses the modified duration measurement to evaluate interest rate risk. Modified duration measures a debt investment s exposure to fair value changes arising from changing interest rates. For example, a modified duration of 2 means that for a rise in interest rates of one percent, the value of the security would decrease two percent. The university does not have a policy regarding interest rate risk. At June 30, 2010, the university had the following debt investments and corresponding modified duration ($ in thousands): Fair Value College Capital Savings Modified Investment Type Operating Funds Endowment Program Duration Multi-Strategy Bond Fund - - $ 5, Federal Agency - $ Fixed Income Fund $ 5, Fixed Income Fund - - $ 17, Hedge funds totaling $10.4 million are exposed to interest rate risk, however, underlying fund data is not available to measure the interest rate risk. 3. Accounts Receivable: Accounts receivable consisted of the following at June 30, 2010 and 2009 ($ in thousands): June 30, 2010 Gross Allowance Net Student tuition and fees $ 16,041 $ (6,301) $ 9,740 Sponsored programs 51,549 (1,203) 50,346 Auxiliary services and other operating activities 414 (110) 304 Capital appropriations, grants and contracts 9,979-9,979 $ 77,983 $ (7,614) $ 70,369 June 30, 2009 Gross Allowance Net Student tuition and fees $ 13,472 $ (5,386) $ 8,086 Sponsored programs 52,056 (1,155) 50,901 Auxiliary services and other operating activities 504 (32) 472 Capital appropriations, grants and contracts 5,064-5,064 $ 71,096 $ (6,573) $ 64,523 29

80 NOTES TO FINANCIAL STATEMENTS 4. Education Trust of Alaska: Assets held in trust include operating funds of the Education Trust of Alaska (Trust). The Trust was established pursuant to state statute on April 20, 2001 by the Board of Regents to facilitate administration of the state s Internal Revenue Code (IRC) Section 529 College Savings Program. The program is a nationally marketed college savings program developed in accordance with IRC Section 529 and includes the resources of the university s former Advance College Tuition (ACT) Program. Participant account balances of approximately $3.4 billion and $2.8 billion at June 30, 2010 and 2009, respectively, are not included in the financial statements. Separately audited Trust financial statements are available upon request from the University of Alaska Controller s office. Assets of the Trust are invested in various mutual funds at the direction of T. Rowe Price Associates, Inc., the program manager. The net assets of the Trust, which include a reserve for University of Alaska (UA) Tuition Value Guarantees, are available for payment of program administrative costs, benefits and other purposes of the Trust. Based on actuarial studies, management estimates reserve requirements for the UA Tuition Value Guarantees to be approximately $5.3 million and $5.2 million at June 30, 2010 and 2009, respectively. 5. Land Grant Trust Property and Other Assets: Land Grant Trust property and other assets consist of real property and timber and other rights. By Acts of Congress in 1915 and 1929, approximately 110,000 acres of land was granted to the territory of Alaska to be held in trust for the benefit of the university. The lands were managed by the territory, and later the state of Alaska. In accordance with a 1982 agreement, the lands were subsequently transferred to the Board of Regents, as trustee. In 1982 and 1988 certain state lands including timber and other rights were transferred to the trust as replacement for lands disposed of or adversely affected during the period of administration by the territory and the state. These lands and property interests were recorded at their fair value as of the date of transfer. The net proceeds from timber, land and other rights are deposited in the land grant endowment trust fund as described in the Endowment section in Note 1 above. At June 30, 2010 and 2009, approximately 82,243 and 116,306 acres, respectively, were held in trust at zero basis because fair value at the time of transfer was not determinable. Legislation passed in 2005 granted the University of Alaska approximately 250,000 acres of state land. The intent of the Legislature was to provide the university with an equitable land grant as originally envisioned in the federal land grant of 1915 and to supply the university with a significant portfolio of income producing land to help fund public higher education in Alaska. Two conservation groups filed a lawsuit against the state and university claiming the legislation was unconstitutional because it dedicated funds. The plaintiffs prevailed with the Alaska Supreme Court which nearly invalidated the 2005 legislation. Approximately 33,658 acres of land the university had received through June 30, 2009 was returned in April A research forest, which will not be conveyed to the university until 2055, the old downtown Fairbanks Courthouse Building and the Key Bank parcel in Fairbanks were exceptions and will not be returned to the state. Since the returned properties were recorded at a zero basis, the ruling did not affect the results of operations. 30

81 NOTES TO FINANCIAL STATEMENTS 6. Capital Assets: A summary of capital assets follows ($ in thousands): Balance Balance July 1, 2009 Additions Reductions June 30, 2010 Capital assets not depreciated: Land $ 28,490 $ - $ - $ 28,490 Construction in progress 120,822 73, ,758 59,176 Library and museum collections 57, ,964 Other capital assets: Buildings 1,065, ,794-1,196,399 Infrastructure 57,574 3, ,191 Equipment 171,075 14,144 14, ,028 Leasehold improvements 26, ,632 Other improvements 22, ,777 Total 1,549, , ,992 1,623,657 Less accumulated depreciation: Buildings 533,018 41, ,633 Infrastructure 30,214 1, ,044 Equipment 126,850 12,721 13, ,912 Leasehold improvements 8,499 1,416-9,916 Other improvements 17, ,838 Total accumulated depreciation 715,776 58,228 13, ,343 Capital assets, net $ 833,989 $ 164,655 $ 135,330 $ 863,314 Balance Balance July 1, 2008 Additions Reductions June 30, 2009 Capital assets not depreciated: Land $ 28,083 $ 407 $ - $ 28,490 Construction in progress 92,918 84,822 56, ,822 Library and museum collections 56, ,094 Other capital assets: Buildings 1,012,719 52,886-1,065,605 Infrastructure 54,867 2,707-57,574 Equipment 180,575 13,681 23, ,075 Leasehold improvements 26, ,632 Other improvements 21, ,473 Total 1,473, ,183 80,099 1,549,765 Less accumulated depreciation: Buildings 493,593 39, ,018 Infrastructure 28,610 1,604-30,214 Equipment 135,801 12,442 21, ,850 Leasehold improvements 7,171 1,328-8,499 Other improvements 16, ,195 Total accumulated depreciation 681,520 55,649 21, ,776 Capital assets, net $ 792,161 $ 100,534 $ 58,706 $ 833,989 31

82 NOTES TO FINANCIAL STATEMENTS 7. Unrestricted Net Assets: At June 30, unrestricted net assets included the following ($ in thousands): Designated: Auxiliaries $ 6,505 $ 7,278 Working capital fund 4,826 4,715 Working capital advances (2,611) (2,318) Service centers 12,894 11,369 Debt service funds 1,574 1,598 Renewal and replacement funds 8,989 7,708 Quasi-endowment funds 28,449 27,711 Employee benefit funds (13) 8,437 Endowment earnings 12,302 10,518 Encumbrances 10,423 14,900 Total designated 83,338 91,916 Undesignated 23,363 15,220 Total unrestricted net assets $ 106,701 $ 107,136 Unrestricted net assets include non-lapsing university receipts of $46.7 million at June 30, Nonlapsing university receipts of $41.5 million from 2009 were fully expended in At June 30, 2010 and 2009, $53.2 million and $48.8 million, respectively, of auxiliary funds, encumbrances and other unrestricted net assets were pledged as collateral for the university's general revenue bonds, as calculated under the terms of the 1992 General Revenue Bonds Trust Indenture. 8. Long-term Debt: Debt service requirements at June 30, 2010 were as follows ($ in thousands): Year ended June 30, Principal Interest Total 2011 $ 6,763 $ 4,572 $ 11, ,958 4,359 11, ,175 4,134 11, ,821 3,949 10, ,657 3,679 10, ,344 14,475 48, ,902 7,875 38, ,380 2,755 19, , , $ 121,300 $ 46,306 $ 167,606 32

83 NOTES TO FINANCIAL STATEMENTS Long-term debt consisted of the following at June 30, 2010 and 2009 ($ in thousands): Revenue bonds payable 1.40% to 5.00% general revenue bonds due serially to 2036, secured by a pledge of unrestricted current fund revenue generated from tuition, fees, recovery of facilities and administrative costs, sales and services of educational departments, miscellaneous receipts and auxiliaries. $ 100,490 $ 105,785 Note payable capital construction 1.826% assisted note to the Alaska Housing Finance Corporation (AHFC) to finance construction of Anchorage campus housing, due semiannually through February ,458 19,605 Equipment financings 3.94% to 4.77% notes for the purchase of equipment and vehicles due in quarterly installments through June ,352 2,623 $ 121,300 $ 128,013 In fiscal year 2010, the state reimbursed the university $1,412,615 for debt service on Series K general revenue bonds. Subject to annual appropriation, the state will reimburse the university for principal and interest on $17,005,000 of the remaining bond principal. Annual debt service on this portion of the bonds is approximately $1.4 million. Under the terms of the 1992 General Revenue Bonds Trust Indenture, the university is required to maintain a reserve account with a trustee at an amount equal to one-half of the maximum annual general revenue bond debt service. The balance in the reserve account at June 30, 2010 and 2009 was $4.7 million and $4.8 million, respectively. In fiscal year 2010, the university issued general revenue refunding bonds Series P totaling $14,045,000 to refund and redeem the outstanding maturities of Series H and J general revenue bonds. The current refunding resulted in an economic gain of $1,487,000 and total debt service payments over the next 13 years will decrease by $1,813, Deferred Lease Revenue: In fiscal year 1997, the university entered into an agreement to construct a facility and establish the International Arctic Research Center (IARC). The university received $19,215,000 through a Japanese non-profit corporation to support the construction of the IARC in exchange for a commitment to provide research facilities to various Japanese research organizations and agencies for a period of 25 years, including lease extensions. The Japanese research organizations began occupying the IARC in fiscal year The deferred lease revenue at June 30, 2010 is $4,803,750 and is reduced at the rate of $1,281,000 per year with a corresponding increase to other operating revenue. 33

84 NOTES TO FINANCIAL STATEMENTS 10. Long-term Liabilities: Long-term liability activity was as follows ($ in thousands): Amounts Balance Balance due within July 1, 2009 Additions Reductions June 30, 2010 one year Deferred revenue - capital $ 10,519 $ 812 $ 8,456 $ 2,875 $ - Deferred lease revenue 6,085-1,281 4,804 1,281 Long-term debt 128,013 14,295 21, ,300 6,763 Security deposits and other liabilities 5, ,980 - $ 150,463 $ 15,247 $ 30,751 $ 134,959 $ 8,044 Amounts Balance Balance due within July 1, 2008 Additions Reductions June 30, 2009 one year Deferred revenue - capital $ 5,781 $ 9,147 $ 4,409 $ 10,519 $ - Deferred lease revenue 7,366-1,281 6,085 1,281 Long-term debt 136,678 1,049 9, ,013 6,473 Net pension and OPEB obligations 31,325-31, Security deposits and other liabilities 7,397 1,690 3,241 5,846 - $ 188,547 $ 11,886 $ 49,970 $ 150,463 $ 7, Capital Appropriations and Construction Commitments: Major construction projects of the university are funded primarily by State of Alaska appropriations, university revenue bonds and federal grants. Unexpended and unbilled capital funds appropriated by the State of Alaska in prior years, which are not reflected as appropriation revenue or receivables on the university s books at June 30, 2010, totaled $114.0 million. In addition, unexpended proceeds of university-issued general revenue bonds designated for construction projects totaled $0.5 million at June 30, Construction commitments at June 30, 2010 aggregated $65.0 million. At June 30, 2010, the university had received $4.1 million from State of Alaska capital appropriations and other sources in advance of expenditures. In 2010 the university spent $ 5.96 million, part of construction in progress, on building the Sikuliaq. The vessel will be owned by the National Science Foundation, the agency funding the construction, and operated by the University of Alaska Fairbanks, as part of the U.S. academic research fleet. It will be used by scientists in the United States and international oceanographic community through the University-National Oceanographic Laboratory System. The Sikuliaq is anticipated to be ready for unrestricted science operations in 2014 and will be home ported in Alaska at the Seward Marine Center. 34

85 NOTES TO FINANCIAL STATEMENTS 12. Pension Plans: Participation in one of the various pension plans generally depends on when an employee was originally hired. Substantially all regular employees hired before July 1, 2006 participate in one of the following pension plans: The State of Alaska Public Employees' Retirement System Defined Benefit (PERS-DB), a cost-sharing, multiple-employer public employee retirement plan, The State of Alaska Teachers' Retirement System Defined Benefit (TRS-DB), a cost-sharing, multiple-employer public employee retirement plan, The University of Alaska Optional Retirement Plan (ORP) Tier 1 or Tier 2, a single-employer defined contribution plan. In addition, substantially all eligible employees participate in the University of Alaska Pension Plan, a supplemental single-employer defined contribution plan. Employees hired on or after July 1, 2006 have a choice to participate in the University of Alaska Retirement Program or the applicable state defined contribution plan. The University of Alaska Retirement Program consists of ORP (Tier 3) and the University of Alaska Pension Plan. The state s defined contribution plans are the Public Employees Retirement System Defined Contribution (PERS-DC) or the Teachers Retirement System-Defined Contribution (TRS-DC). Each of the plans noted above are described in more detail in the sections that follow. None of the retirement systems or plans own any notes, bonds or other instruments of the university. State of Alaska Public Employees Retirement System - Defined Benefit (PERS-DB) Plan Description PERS is a defined benefit, cost-sharing, multiple-employer public employee retirement plan established and administered by the State of Alaska. The plan was originally established as an agent multipleemployer plan, but was converted by legislation to a cost-sharing plan, effective July 1, PERS provides pension, postemployment health care, death and disability benefits to eligible participants. Benefit and contribution provisions are established by state law and may be amended only by the state legislature. Effective July 1, 2006, the state legislature closed PERS-DB to new members and created a Public Employees Retirement System Defined Contribution Retirement Plan (PERS- DC), disclosed later in this note. Each fiscal year, PERS-DB issues a publicly available financial report which includes financial statements and required supplementary information. That report may be obtained by writing to the State of Alaska, Department of Administration, Division of Retirement and Benefits, P.O. Box , Juneau, Alaska, or by calling (907)

86 NOTES TO FINANCIAL STATEMENTS Funding Policy and Annual Pension Cost Employee contribution rates are 6.75 percent (7.5 percent for peace officers and firefighters). The funding policy for PERS-DB provides for periodic employer contributions at actuarially determined rates that, expressed as a percentage of annual covered payroll, are sufficient to accumulate the assets to pay benefits when due. The 2010 actuarially determined rate was percent of applicable gross pay. However, the employer contribution rate for the university was capped by the state at 22 percent for fiscal year The state appropriated funding directly to the PERS-DB plan as a relief payment to employers contributions for fiscal year The university recognized $7,126,913 in state on-behalf pension payments for the PERS-DB plan. The amounts contributed to PERS-DB by the university during the years ended June 30, 2010, 2009 and 2008 were $27,074,153, $27,269,589, and $27,230,213, respectively, equal to the required employer contributions for each year. PERS Defined Benefit Pension Plan Changes The Alaska legislature converted PERS-DB from an agent multiple-employer plan to a cost-sharing plan effective July 1, This change provided for an integrated system of accounting for all employers. Under the integrated system, the PERS-DB plans unfunded liability will be shared among all employers with each contributing 22 percent of their covered payroll. As a result of the conversion, the Net Pension (NPO) and Other Postemployment Benefit (OPEB) obligations are no longer required to be recorded as liabilities for cost-sharing plans according to government accounting standards. Accordingly, net pension and OPEB obligations totaling $31,325,361 were written off as extraordinary items as of July 1, State of Alaska Teachers Retirement System - Defined Benefit (TRS-DB) Plan Description TRS-DB is a defined benefit, cost-sharing, multiple employer public employee retirement plan established and administered by the State of Alaska. TRS-DB provides pension, postemployment health care, death and disability benefits to participants. Benefit and contribution provisions are established by state law and may be amended only by the state legislature. Effective July 1, 2006, the state legislature closed TRS-DB to new members and created a Teachers Retirement System Defined Contribution Retirement Plan (TRS-DC), disclosed later in this note. Each fiscal year, TRS-DB issues a publicly available financial report which includes financial statements and required supplementary information. That report may be obtained by writing to the State of Alaska, Department of Administration, Division of Retirement and Benefits, P.O. Box , Juneau, Alaska, or by calling (907)

87 NOTES TO FINANCIAL STATEMENTS Funding Policy and Annual Pension Cost Employees contribute 8.65 percent of their base salary as required by state statute. The funding policy for TRS-DB provides for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are sufficient to accumulate the assets to pay benefits when due. During fiscal year 2010, contractually required employee and employer contribution rates were 8.65 percent and percent, respectively. The amounts contributed to TRS-DB by the university during the years ended June 30, 2010, 2009 and 2008 were $5,454,265, $5,485,631, and $5,444,878, respectively, equal to the required employer contributions for each year. The actuarially determined employer contribution rate for 2010 was percent. The state appropriated funding directly to the TRS-DB plan to augment employer contributions for For fiscal year 2010, the university recognized $10,848,081 in state on-behalf pension payments for the TRS-DB plan. Defined Contribution Plans: State of Alaska Public Employees Retirement System - Defined Contribution (PERS-DC) Plan Description PERS-DC is a defined contribution, cost-sharing, multiple-employer public employee retirement plan established and administered by the State of Alaska to provide pension and postemployment healthcare benefits for eligible employees. Benefit and contribution provisions are established by state law and may be amended only by the state legislature. PERS-DC was created by the state effective July 1, Plan savings are accumulated in an individual retirement account for the exclusive benefit of members or beneficiaries. Funding Policy and Annual Pension Cost The employee contribution rate is eight percent and the employer effective contribution rate is 22 percent of covered payroll for fiscal years 2010 and For the years ended June 30, 2010 and 2009, the university s total covered payroll for the PERS-DC plan was approximately $6.1 million and $4.4 million, and contributions made by the university totaled $1,346,145 and $965,143, respectively. On July 1, 2006, three pension trust sub-funds were created within PERS, the Retiree Major Medical Insurance (RMP), Health Reimbursement Arrangement (HRA), and Occupation Death and Disability (OD&D). RMP allows eligible members who retire directly from the plan to obtain medical benefits. The HRA allows medical care expenses to be reimbursed from individual savings accounts established for eligible persons. OD&D provides employees with benefits as a result of death or disability on the job. PERS-DC participants are eligible members of RMP and HRA and their postemployment healthcare benefits are paid out of these funds. The employer RMP contribution rates for fiscal year 2010 and 2009 are 0.83 and 0.99 percent for medical coverage and 0.30 and 0.58 percent (1.33 percent for peace officers and firefighters) for occupational death and disability benefit contributions. For fiscal years 2010 and 2009, the HRA employer contributions are $ and $ per month for full time employees and $1.09 and $1.04 per hour for part time employees, respectively. 37

88 NOTES TO FINANCIAL STATEMENTS Each fiscal year, PERS-DC issues a publicly available financial report which includes financial statements and required supplementary information. That report may be obtained by writing to the State of Alaska, Department of Administration, Division of Retirement and Benefits, P.O. Box , Juneau, Alaska, or by calling (907) State of Alaska Teachers Retirement System - Defined Contribution (TRS-DC) Plan Description TRS-DC is a defined contribution, cost-sharing, multiple-employer public employee retirement plan established and administered by the State of Alaska to provide pension and postemployment healthcare benefits for teachers and other eligible employees. Benefit and contribution provisions are established by state law and may be amended only by the state legislature. TRS-DC was created by the state effective July 1, Plan savings are accumulated in an individual retirement account for the exclusive benefit of members or beneficiaries. Funding Policy and Annual Pension Cost The employee contribution rate is eight percent and the effective employer contribution rate is percent of covered payroll for fiscal years 2010 and For the years ended June 30, 2010 and 2009, the university s total covered payroll for the TRS-DC plan was approximately $2.7 million and $2.1 million, and contributions made by the university totaled $333,253 and $266,443, respectively. On July 1, 2006, two pension trust sub-funds were created in TRS, the Retiree Major Medical Insurance (RMP) and Health Reimbursement Arrangement (HRA). The TRS Occupational Death and Disability (OD&D) trust sub-fund was created on July 1, RMP allows eligible members who retire directly from the plan to obtain medical benefits. The HRA allows medical care expenses to be reimbursed from individual savings accounts established for eligible persons. OD&D provides employees with benefits as a result of death or disability on the job. TRS-DC participants are eligible members of RMP and HRA and their postemployment healthcare benefits are paid out of these funds. The employer RMP contribution rate for fiscal year 2010 and 2009 for each member s compensation was 1.03 and 0.99 percent for medical coverage, and 0.32 and 0.62 percent for occupational death and disability benefit contributions. For fiscal years 2010 and 2009, the HRA employer contributions are $ and $ per month for full time employees and $1.09 and $1.04 per hour for part time employees, respectively. Each fiscal year, TRS-DC issues a publicly available financial report which includes financial statements and required supplementary information. That report may be obtained by writing to the State of Alaska, Department of Administration, Division of Retirement and Benefits, P.O. Box , Juneau, Alaska, or by calling (907)

89 NOTES TO FINANCIAL STATEMENTS University of Alaska Optional Retirement Plan (ORP) Plan Description The ORP is an employer funded defined contribution plan which operates in conjunction with a companion mandatory tax-deferred annuity plan. The ORP is comprised of three layers of participants, the original ORP or ORP Tier 1, ORP Tier 2 which was created for participants hired on or after July 1, 2005, and ORP Tier 3 which was created for participants hired on or after July 1, For ORP Tier 1 and ORP Tier 2, faculty classified as regular and certain administrators made a one-time election to participate in the ORP as an alternative to participation in the defined benefit plans, PERS-DB or TRS- DB. For ORP Tier 3, each new eligible employee may make a one-time election to participate in the University of Alaska Retirement Program (includes ORP Tier 3 and the University of Alaska Pension Plan) as an alternative to participation in the State of Alaska defined contribution plans, PERS-DC or TRS-DC. Funding Policy and Annual Pension Cost ORP Tier 1 The ORP Tier 1 participants make employee contributions to one of the plan s annuity programs at a rate of 8.65 percent of covered payroll. The university contributes to one of the plan s authorized employee-selected annuity providers or investment managers at a rate equal to the three-year moving average of the TRS-DB employer contribution rates (12.56 percent for 2010 and percent for 2009). In fiscal year 2010 and 2009, the university s total covered payroll for the ORP Tier 1 plan was approximately $50.8 million and $49.7 million, respectively. The amounts contributed to the ORP Tier 1 by the university during the years ended June 30, 2010, 2009 and 2008 were $6,381,618, $8,462,414 and $9,945,730, respectively. ORP Tier 2 The ORP Tier 2 participants make employee contributions to one of the plan s annuity programs at a rate of 8.65 percent of covered payroll. The university contributed to one of the plan s authorized employee-selected annuity providers or investment managers at a rate of 12 percent of covered payroll for fiscal years 2010 and In fiscal year 2010 and 2009, the university s total covered payroll for the ORP Tier 2 plan was approximately $3.7 million and $4.5 million, respectively. The amounts contributed to the ORP Tier 2 by the university during the years ended June 30, 2010, 2009 and 2008 were $446,041, $541,237 and $614,390, respectively. The ORP Tier 2 plan was available for new ORP benefit-eligible employees hired in fiscal year As of July 1, 2006, the ORP Tier 2 plan was no longer available to newlyhired ORP benefit-eligible employees. 39

90 NOTES TO FINANCIAL STATEMENTS ORP Tier 3 The ORP Tier 3 is eligible for employees hired on or after July 1, The ORP Tier 3 participants make employee contributions to one of the plan s annuity programs at a rate of eight percent of covered payroll. The university contributes to one of the plan s authorized employee-selected annuity providers or investment managers at a rate of 12 percent of covered payroll. In fiscal years 2010 and 2009, the university s total covered payroll for the ORP Tier 3 plan was approximately $62.0 million and $46.6 million, respectively. The amounts contributed to the ORP Tier 3 by the university during the years ended June 30, 2010, 2009 and 2008 were $7,436,012, $5,596,529 and $3,700,880, respectively. Plan Assets At June 30, 2010 and 2009, plan assets (participants accounts attributable to employer contributions) for ORP Tier 1, Tier 2 and Tier 3 had a net value of approximately $113.8 million and $93.2 million, respectively. ORP Tier 1 and ORP Tier 2 participants are 100 percent vested at all times. University contributions for ORP Tier 3 participants are 100 percent vested after three years of service. University of Alaska Pension Plan (Pension) Plan Description In addition to the other retirement plans, substantially all regular employees (hired before July 1, 2006) and certain faculty classified as temporary, participate in the Pension plan which was established January 1, 1982, when the university withdrew from the federal social security program. Eligible employees, hired on or after July 1, 2006, electing to participate in the University of Alaska Retirement Program also participate in the Pension plan. Funding Policy and Annual Pension Cost Effective January 1, 2010, employer contributions for regular employees were 7.65 percent of covered wages up to $42,000 and $106,800 in 2010 for certain faculty classified as temporary. The plan provides for employer contributions to be invested in accordance with participant-directed investment elections to the plan's fixed income and/or equity funds. Participants hired before July 1, 2006 are 100 percent vested at all times. University contributions for participants hired on or after July 1, 2006 are 100 percent vested after three years of service. Plan Assets In 2010 and 2009, the university's total covered payroll for the Pension plan was approximately $174.8 million and $175.8 million, respectively. The university's costs to fund and administer the plan totaled $13.4 million, or 7.65 percent of covered payroll. At June 30, 2010 and 2009, plan assets (participants' accounts) had a net value of approximately $275.6 million and $254.7 million, respectively. 40

91 NOTES TO FINANCIAL STATEMENTS 13. Insurance and Risk Management: The university is exposed to a wide variety of risks including property loss, bodily and personal injury, intellectual property, errors and omissions, aviation and marine. Exposures are handled with a combination of self-insurance, commercial insurance, and membership in a reciprocal risk retention group. The university is self-insured up to the maximum of $2.0 million per occurrence for casualty claims and $250,000 for property claims. Commercial carriers provide coverage in excess of these amounts. Health care, workers compensation and unemployment claims are fully self-insured. Liabilities have been established to cover estimates for specific reported losses, estimates for unreported losses based upon past experience modified for current trends, and estimates of expenses for investigating and settling claims. Changes in applicable liability amounts follow ($ in thousands): Balance Provision Claims Balance July 1, 2009 for Claims Payment June 30, 2010 Health $ 8,392 $ 59,750 $ (59,167) $ 8,975 General liability 5,613 1,326 (76) 6,863 Workers compensation 5,991 1,973 (1,274) 6,690 Unemployment (716) 235 $ 20,134 $ 63,862 $ (61,233) $ 22,763 Balance Provision Claims Balance July 1, 2008 for Claims Payment June 30, 2009 Health $ 7,798 $ 55,770 $ (55,176) $ 8,392 General liability 5, (416) 5,613 Workers compensation 6,051 1,555 (1,615) 5,991 Unemployment (427) 138 $ 19,283 $ 58,485 $ (57,634) $ 20,134 41

92 NOTES TO FINANCIAL STATEMENTS 14. Commitments and Contingencies: Amounts received and expended by the university under various federal and state grants, contracts and other programs are subject to audit and potential disallowance. From time to time the university is named as a defendant in legal proceedings or cited in regulatory actions related to the conduct of its operations. In the normal course of business, the university also has various other commitments and contingent liabilities which are not reflected in the accompanying financial statements. In the opinion of management, the university will not be affected materially by the final outcome of any of these legal proceedings, environmental investigations, audit adjustments, or other commitments and contingent liabilities. The university received a Potentially Responsible Party (PRP) letter from the Alaska Department of Environmental Conservation (ADEC) in August The letter identified the university as one of the potential parties that may be responsible for cleanup costs of soil contamination found during a water line improvement project next to Northwest Campus property. The extent of the contamination source, the number of potentially responsible parties, and remediation costs are being assessed but the outcome is unknown. 15. University of Alaska Foundation: The University of Alaska Foundation (foundation) is a legally separate, non profit organization formed in 1974 to solicit donations for the exclusive benefit of the University of Alaska. During 2010 and 2009, the university transferred $0.9 million and $1.4 million of institutional support, respectively. For the same periods, the foundation reimbursed the university for operating expenses totaling $2.6 million and $1.9 million, respectively. At June 30, 2010 and 2009, distributions and expenditures by the foundation for the benefit of the university totaled $13.3 million and $17.7 million, of which $12.6 million and $17.3 million were direct reimbursements to the university. Additionally, the foundation owed the university $1.7 million at June 30, 2010 and $2.1 million at June 30, 2009, primarily for reimbursement of expenditures on funding provided by the foundation. The investable resources of the university s land grant endowment trust fund and the foundation s pooled endowment funds are combined into a consolidated endowment fund for investment purposes. At June 30, 2010 and 2009, the fair value of the fund was $216.2 million and $198.3 million, respectively. The university s share of this fund was $114.2 million and $108.9 million, respectively, which is reflected in endowment investments. The fund is managed by the foundation s investment committee and treasurer on a total return basis in accordance with an investment policy approved by the Board of Regents. The net assets and related activity for the university s land grant endowment trust s investment in the fund is reflected in the university s financial statements. 42

93 NOTES TO FINANCIAL STATEMENTS 16. Functional Classifications with Natural Classifications: The university s operating expenses by natural classification for 2010 and 2009 were as follows ($ in thousands): Compensation Contractual Supplies & Student Depre- & Benefits Services Materials Other Aid ciation Total Instruction $ 167,032 $ 25,774 $ 11,166 $ 931 $ - $ - $ 204,903 Academic support 43,239 7,259 7, ,688 Research 90,176 32,597 10, ,447 Public service 25,991 11,708 2, ,401 Student services 36,326 10,763 3, ,171 Operations and maintenance 27,151 19,180 12, ,339 Institutional support 77,065 11,915 3,349 2, ,942 Student aid ,965-20,965 Auxiliary enterprises 9,771 18,991 11, ,228 Depreciation ,228 58,228 State on-behalf payments , ,975 $ 476,751 $ 138,187 $ 61,009 $ 23,147 $ 20,965 $ 58,228 $ 778,287 Compensation Contractual Supplies & Student Depre- & Benefits Services Materials Other Aid ciation Total Instruction $ 158,984 $ 26,610 $ 10,361 $ 349 $ - $ - $ 196,304 Academic support 42,050 5,431 7, ,642 Research 84,985 30,233 11, ,949 Public service 24,983 10,454 2, ,820 Student services 34,776 10,386 2, ,170 Operations and maintenance 27,238 18,686 14, ,186 Institutional support 71,012 13,297 3,974 1, ,184 Student aid ,937-17,937 Auxiliary enterprises 9,672 17,376 12, ,724 Depreciation ,649 55,649 State on-behalf payments , ,502 $ 453,700 $ 132,473 $ 65,106 $ 34,202 $ 17,937 $ 55,649 $ 759,067 43

94 THIS PAGE INTENTIONALLY LEFT BLANK

95 APPENDIX B TRUST INDENTURE

96 THIS PAGE INTENTIONALLY LEFT BLANK

97 APPENDIX B Page 1 of 16

98 APPENDIX B Page 2 of 16

99 APPENDIX B Page 3 of 16

100 APPENDIX B Page 4 of 16

101 APPENDIX B Page 5 of 16

102 APPENDIX B Page 6 of 16

103 APPENDIX B Page 7 of 16

104 APPENDIX B Page 8 of 16

105 APPENDIX B Page 9 of 16

106 APPENDIX B Page 10 of 16

107 APPENDIX B Page 11 of 16

108 APPENDIX B Page 12 of 16